Artificial intelligence (AI) specialist SoundHound AI (NASDAQ:SOUN) — which specializes in facilitating conversational experiences — saw its shares decline ahead of a key litmus test. The company will release its first-quarter earnings report on May 9. While there’s no denying that long-term demand for AI has bolstered the entire technology ecosystem, SOUN stock could face downside risks due to overhype and profit-taking.

Overall, analysts anticipate that SoundHound will post a loss per share of 9 cents on revenue of $10.1 million. The most optimistic target calls for a loss of 7 cents on sales of $10.17 million. In last year’s Q1, the company posted a loss of 13 cents with a top-line print of $6.71 million. Notably, SoundHound missed projections for both the top and bottom lines back then.

Zacks Equity Research notes that the tech specialist “is likely to have benefited from the growing demand for its conversational AI platform, owing to the increasing popularity of generative AI and large language models.” In particular, demand for smart customer-oriented solutions — especially in the restaurant and automotive spaces — should help boost SoundHound’s performance.

In March, the company introduced an in-vehicle voice assistant, providing powerful generative AI capabilities.

Risk Factors Rise for SOUN Stock

Although SOUN stock benefits from both underlying catalysts and broader sector enthusiasm, several concerns exist about its forward viability. For one thing, shares have already gained over 130% on a year-to-date basis. Thus, the AI-fueled narrative may be getting overstretched.

Another risk factor for SOUN stock centers on competition. Zacks points out that rival offerings have increased in the AI market, especially in the customer service and voice assistant fields. That could act as a counterweight to SoundHound’s Q1 performance.

In addition, investors — especially the institutional variety — may be incentivized to pocket their extraordinary profits. Recently, billionaire investor Stanley Druckenmiller revealed that he trimmed his exposure to Nvidia (NASDAQ:NVDA). Although Druckenmiller believes in the long-term narrative of AI, he views NVDA as somewhat overhyped in the near term.

Adding to the concerns, several publicly traded enterprises with ties to AI are trading at rich premiums. With entities like Super Micro Computer (NASDAQ:SMCI) suffering a big drop despite beating earnings targets, SOUN stock faces significant risks.

Still, the other side of the equation is that Nvidia continues to see reiterated buy ratings among analysts. So, it’s also possible that the AI narrative can continue moving forward.

Why It Matters

At the moment, analysts rate SOUN stock as a consensus moderate buy. This assessment breaks down into four buys, one hold and one sell. On average, the price target stands at $7.15, implying roughly 50% upside. The most optimistic target calls for $9.50, almost doubling the current market price.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.