SoundHound AI’s Stock Plummets: Is This a Buying Opportunity?
Specific trends often emerge in the Stock market. For instance, small, unprofitable companies can experience rapid gains driven by hype, only to lose those gains just as quickly. SoundHound AI (NASDAQ: SOUN) serves as a prime example. The audio-focused AI startup saw its shares soar after tech heavyweight Nvidia announced a small stake in the company. However, those gains have since collapsed.
As of now, SoundHound’s stock has dropped 61% from its peak of $24.98 reached late last year. Investors must now decide whether to view this decline as an opportunity to buy—or whether to avoid the stock altogether. What lies ahead for the company in the next three years?
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Nvidia’s Exit: What Happened?
Nvidia first engaged with SoundHound in 2017 by participating in a $75 million funding round alongside other tech firms, including Samsung. An SEC filing from February 2024 revealed that Nvidia held approximately 1.73 million shares of SoundHound, equating to about 0.5% of the company’s total shares.
However, by February 2025, another SEC filing indicated that Nvidia had divested its entire stake in SoundHound. This move may have dampened market enthusiasm around the company, suggesting Nvidia lacked long-term strategic plans, such as an acquisition, and saw limited upside compared to other investment opportunities.
Despite Nvidia’s exit, it’s important for investors to consider the broader context. As an AI chip manufacturer, Nvidia thrives on a robust AI software industry. Its investment in SoundHound likely aimed to support developments in new AI applications that could utilize Nvidia’s hardware.
Analyzing SoundHound’s Fundamentals
Nvidia’s involvement may have overshadowed the actual fundamentals of SoundHound, which present a mixed bag. In the fourth quarter, revenue surged by 101% year over year to $34.5 million. However, the context of this growth is crucial.
In 2024, SoundHound made several significant acquisitions, including the purchase of enterprise AI company Amelia for $80 million and the online food platform Allset. These deals added substantial non-organic growth, unlikely to repeat in future quarters, while also increasing the company’s cash burn rate.
Notably, the gross margin in the fourth quarter plummeted from 77.2% to 39.9%, and operating losses skyrocketed by 1,974% from $12.4 million to $257 million.
Image source: Getty Images.
Looking ahead, SoundHound aims to unify various AI ventures into a cohesive voice AI ecosystem. The acquisition of Allset, for example, aligns with the development of an in-vehicle voice assistant designed to streamline restaurant finds and orders directly from a car’s infotainment system.
The company has also formed several partnerships within the restaurant sector, claiming involvement with 30% of top quick-service brands to automate drive-thru operations at select locations. However, the actual commitment from these partners remains uncertain regarding widespread implementation of SoundHound’s software.
Future Outlook for SoundHound’s Stock
SoundHound aspires to integrate voice recognition with generative AI to optimize value creation. However, current market conditions show that clients are still in experimental phases with the technology, making full-scale adoption questionable.
Although voice AI is expected to become more mainstream in the next three years, SoundHound’s stock may still encounter significant decline due to the company’s immense operational losses and dependence on acquisitions for growth. Investors should exercise caution and refrain from investing until operational losses stabilize and a clear path to profitability is established.
Is Investing $1,000 in SoundHound AI Wise Right Now?
Before considering an investment in SoundHound AI, it’s important to note the following:
The Motley Fool Stock Advisor analyst team recently identified the 10 best stocks to buy now—SoundHound AI was not among them. The ten selected stocks have the potential for substantial returns in upcoming years.
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends DoorDash, Nvidia, and Uber Technologies. The Motley Fool has a disclosure policy.
The views expressed herein are the author’s own and do not necessarily reflect those of Nasdaq, Inc.
