ANKARA, TURKIYE – AUGUST 27: In this photo illustration, Amelia logo is being displayed on a mobile phone screen in front of a monitor displaying SoundHoundAI logo in Ankara, Turkiye on August 27, 2024. (Photo by Mustafa Hatipoglu/Anadolu via Getty Images)
Anadolu via Getty Images
SoundHound AI (NASDAQ:SOUN), a voice AI platform that enables businesses to provide conversational AI experiences, experienced a stock surge of 31% in just one week. This increase was driven by the company’s remarkable quarterly performance, which saw revenue rise 217% year-over-year to $42.7 million.
The key question for investors now is whether the stock remains a solid investment following such a considerable rise. The company’s current valuation seems elevated, making it a risky investment. Nonetheless, the substantial revenue growth clarifies why investors are prepared to pay a premium for the stock.
A thorough assessment of SoundHound AI indicates only moderate operational outcomes and financial reliability. Our analysis examined crucial areas including Growth, Profitability, Financial Stability, and Resilience during downturns. These elements combined raise questions about the stock’s appeal at its present price. However, for investors with a high-risk appetite, the stock could still be a profitable investment, as elaborated below.
That said, if you are looking for an upside with less volatility than holding individual stocks, consider the High Quality Portfolio, which has consistently outperformed its benchmark — a combination of the S&P 500, Russell, and S&P midcap index, achieving returns above 91% since its inception. Also see – Eli Lilly: 50% Upside For LLY Stock?
How Does SOUN Stock’s Valuation Look vs. The S&P 500?
Examining price relative to sales or profits, SOUN stock seems very costly compared to the broader market.
- SoundHound AI has a price-to-sales (P/S) ratio of 40.7, while the S&P 500 has a ratio of 3.1
- However, this premium valuation is justified by its robust top-line growth.
How Have SoundHound AI’s Revenues Grown Over Recent Years?
SoundHound AI’s Revenues have increased significantly in recent years.
- The company’s revenue has grown at an average annual rate of 60.0% over the last three years (compared to 5.5% for the S&P 500)
- Its quarterly revenues surged 217%, climbing to $42.7 million in the latest quarter from $13.5 million a year earlier (against 4.8% for the S&P 500)
How Profitable Is SoundHound AI?
SoundHound AI’s profitability metrics are significantly weaker than most companies tracked by Trefis.
- Operating Income over the last four quarters was $-197 million, resulting in a very poor operating margin of -150%
- Operating Cash Flow (OCF) was $-112 million during this period, showing a very poor OCF margin of -85% (compared to 14.9% for the S&P 500)
- Net Income amounted to $-228 million for the same period—indicating a very poor net income margin of -174% (against 11.6% for the S&P 500)
Does SoundHound AI Look Financially Stable?
SoundHound AI’s financial status appears very robust.
- SoundHound AI is free of debt as of the most recent quarter.
- Cash and equivalents reached $230 million out of $588 million in total assets—resulting in a very strong Cash-to-Assets Ratio of 39%
How Resilient Is SOUN Stock During A Downturn?
SOUN stock has underperformed the S&P 500 during recent downturns. With expectations hinging on a smooth transition for the U.S. economy, what occurs if another recession occurs? Our dashboard How Low Can Stocks Go During A Market Crash evaluates how key stocks performed during and after the previous six market crashes.
Inflation Shock (2022)
- SOUN stock dropped 93.6% from a peak of $14.98 on May 5, 2022, to $0.97 on December 22, 2022, while the S&P 500 declined 25.4%
- The stock fully recovered to its pre-crisis peak by December 6, 2024
- It subsequently rose to a high of $24.23 on December 26, 2024, and currently trades around $14
U.S. Tariffs Imposition (2025)
- SOUN stock fell 62.5% from a high of $20.62 on January 3, 2025, to $7.50 on April 21, 2025, compared to a 19% decline for the S&P 500
- The stock has yet to rebound to its pre-crisis peak.
Putting All The Pieces Together: What It Means For SOUN Stock
In summary, SoundHound AI’s performance across multiple metrics is outlined below:
- Growth: Extremely Strong
- Profitability: Extremely Weak
- Financial Stability: Extremely Strong
- Downturn Resilience: Extremely Weak
- Overall: Neutral
The Verdict
While SoundHound AI’s performance across various metrics is neutral, a deeper inspection reveals a pattern typical for a company at this phase: strong sales growth alongside significant cash burn. As sales continue to grow, the company is likely to achieve profitability soon, at least on an adjusted EBITDA basis.
The company’s revenue is estimated to double, from $131 million in the last twelve months to over $250 million within the next three years. This rapid growth rate accounts for the company’s present high price-to-sales (P/S) ratio.
Although the P/S ratio is anticipated to decrease to more manageable levels over time, this reduction should be more than compensated by the expected surge in revenue, which could ultimately propel SOUN stock higher. Various factors could expedite this growth, as detailed in our separate analysis – Can SoundHound AI Stock Double From Here?
Nonetheless, there are considerable risks to keep in mind. Investors might become reluctant to pay such a high premium for SOUN, particularly due to its record of underperformance against the market. Other risks include a high cash burn rate, a rapidly evolving technological landscape, and mounting competition.
Despite these risks, if you have a long-term investment horizon of 3–5 years and are comfortable with the potential for the stock to lose more than 60% of its value, as it has in the past, SOUN could still be a worthy investment. Remember, there is always a significant risk when investing in a single stock, or just a limited number of stocks. Consider Trefis High Quality (HQ) Portfolio which, with a selection of 30 stocks, has consistently outperformed the S&P 500 over the last four years. Why is that? As a collective, HQ Portfolio stocks have delivered superior returns with lower risk compared to the benchmark index, providing a smoother investment experience, as evidenced in HQ Portfolio performance metrics.
