SoundHound AI Faces Challenges Amid Class Action Lawsuit and Market Decline
SoundHound AI (SOUN) has seen its stock price decline by 63.1% year to date (YTD) and 25% just in March. On Friday, shares dropped an additional 11.8% as investor sentiment was negatively impacted by the ongoing global trade war and the announcement of a class action lawsuit alleging the company provided materially false information.
SOUN Stock YTD Performance
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President Donald Trump’s recent tariffs on all imports drew a swift response from China, which imposed a 34% tariff on U.S. goods, effective April 10. As these geopolitical tensions mount, SoundHound faces serious legal challenges with a class action lawsuit filed by Kessler Topaz Meltzer & Check. This lawsuit claims SoundHound misled investors regarding its financial controls, particularly around the accounting of its acquisitions of Synq3 and Amelia Holdings. The firm initially asserted it had resolved financial reporting issues, only to reveal inadequacies in managing complex financial environments later. Such misstatements have caused delays in the 2024 financial report and restatements of inflated goodwill figures.
The law firm Wolf Haldenstein Adler Freeman & Herz LLP announced on Friday that the class action lawsuit is on behalf of all individuals and entities that purchased SOUN shares from May 10, 2024, to March 3, 2025.
Technical Indicators for SOUN Stock
Currently, SoundHound shares are trading below both the 50-day and 200-day moving averages, reinforcing a bearish market trend.
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With this latest downturn, many investors are left wondering if the worst is over. Could this represent a timely opportunity to invest in this AI Stock? Let’s explore the company’s future prospects.
Diversification Efforts Mitigate Risks
A notable shift for SoundHound has been its strategy to reduce dependence on a limited client base. Previously, over 90% of its revenue came from just five customers; that figure has now decreased to around one-third. The company’s largest customer now accounts for just over 14% of its revenue, down from nearly 50% in 2023. This transition signals a significant improvement in customer diversification.
SoundHound’s success in diversifying its client base is reflected in its expansion into various new verticals. In the healthcare sector, contracts with Duke Health and Wellstar Health System indicate substantial progress, while partnerships such as those with Burger King in the UK and Whataburger highlight growth in the restaurant industry.
The company has also secured contracts in the energy sector with major electric utilities in the U.S. Furthermore, initial deployments in government, including work with the City of Coral Springs and the U.S. military in partnership with General Dynamics (GD), further bolster its revenue stability and growth prospects.
Strategic Partnerships to Enhance Offerings
At CES, SoundHound made waves with its debut booth, attracting attention from technology leaders and innovators. The company announced collaborations with prominent firms including NVIDIA (NVDA), Perplexity, Lucid Group, Inc. (LCID), and LG, emphasizing its role in developing leading-edge voice solutions. The expanded partnership with NVIDIA incorporates AI Enterprise tools to improve SoundHound’s voice AI capabilities. This integration allows for real-time processing, responsive interactions, and enhanced AI model optimization—currently in use within automotive applications like Lucid Motors’ voice assistant.
SoundHound’s automotive sector is also experiencing growth, evidenced by a surge in Requests for Proposals and Proofs of Concept. The company is partnering with four electric vehicle manufacturers, and existing clients are upgrading to SoundHound Chat AI Automotive, leveraging generative AI to enhance their offerings.
Promising Addressable Market Opportunities
SoundHound is targeting broad serviceable markets across various sectors, presenting significant opportunities for expansion. In the automotive segment, the global production of over 90 million light vehicles annually creates a multi-billion-dollar revenue potential. Similarly, the restaurant industry boasts over 75 billion global transactions for drive-thru, pickup, and delivery, signifying a potential $5 billion revenue opportunity specifically in the U.S. drive-thru market.
Besides these areas, SoundHound recognizes vast potential in healthcare, retail, and energy sectors, where trillions of interactions each year could benefit from automation and AI solutions. Its recent foray into the energy vertical with a substantial multi-year deal exemplifies its ability to tap into new markets effectively. The size of these total addressable markets, along with SoundHound AI’s growing presence, bolster the company’s path toward capturing significant share in fast-growing industries.
SoundHound AI reported a remarkable 101% revenue growth, totaling $34.5 million in the fourth quarter. The firm projects continued momentum, forecasting revenues between $157 million and $177 million for 2025, translating to a year-over-year growth rate of 97%.
Three-Pillar Strategy Drives Growth
The introduction of SoundHound AI’s new voice commerce ecosystem marks a pivotal evolution in its business strategy. This ecosystem complements its initial voice assistant platform and its second pillar of AI-driven customer service solutions. Users can now engage with SoundHound’s voice assistant to conduct seamless transactions with businesses utilizing its AI customer service tools.
SoundHound AI’s Innovative Voice Assistant Gains Market Interest
At CES, SoundHound AI showcased a fascinating concept: a driver using their in-vehicle voice assistant to discover and order food. This demonstration received positive market feedback, evidenced by multiple proof-of-concept trials currently in progress. These trials involve two prominent Japanese automakers, two German automakers, and several OEMs from the U.S. and Korea. National restaurant chains have also shown enthusiasm to join this developing ecosystem, which suggests that as more Original Equipment Manufacturers (OEMs) adopt SoundHound AI’s technology, the incentive for businesses to engage with the platform will increase. This could lead to more monetizable interactions and bolster SoundHound’s growth momentum.
Analyzing SOUN Stock Valuation
Currently, SOUN shares appear overvalued, as indicated by its Value Score of F. The stock is trading at a forward 12-month price-to-sales (P/S) ratio of 16.41, which surpasses the Zacks Computers – IT Services industry average of 15.73.
Price/Sales (F12M)
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Strength in SOUN’s Earnings Estimates
Analysts are becoming more optimistic about SOUN’s earnings prospects. Over the last two months, the Zacks Consensus Estimate for the company’s expected loss per share in 2025 has improved, narrowing from 27 cents to 16 cents. This shift signals a more positive sentiment around SOUN’s financial outlook.
Find the latest earnings estimates and surprises on the Zacks earnings Calendar.
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Strategizing for SOUN Stock Investment
The company is actively pursuing diversification of its customer base, exploring new market verticals, and developing high-profile partnerships. These initiatives reflect a strategic approach to risk management and long-term growth. Management forecasts a substantial revenue increase of approximately 97% year-over-year for 2025, a significant milestone if achieved. Additionally, SoundHound has a growing contract backlog of nearly $1.2 billion, with an average contract length exceeding six years, providing clearer visibility into its future revenue. Analysts’ recently upgraded earnings projections, paired with robust revenue growth expectations, further strengthen confidence in the company’s performance.
Market analysts appear bullish on SOUN stock, with three out of six analysts rating it as a “Strong Buy.” The stock’s average price target of $14.42 indicates a potential upside of 97% compared to its most recent closing price.
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Nevertheless, short-term concerns like an ongoing class-action lawsuit and the current stock overvaluation may affect investor sentiment. SoundHound AI currently holds a Zacks Rank #3 (Hold), suggesting a balanced risk-reward scenario that could compel investors to adopt a wait-and-see stance while remaining invested. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Explore analysis for stocks like General Dynamics Corporation (GD), NVIDIA Corporation (NVDA), Lucid Group, Inc. (LCID), and SoundHound AI, Inc. (SOUN) in the context of this report.
This article originally published on Zacks Investment Research (zacks.com).
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
