SoundHound AI (NASDAQ:SOUN) fell for the third consecutive day on Wednesday, but the losses accelerated as SOUN stock crumpled 16.4%. The stock is down more than 27% over those three days.
More than likely, the collapse is centered around SoundHound’s appearance at the consumer electronics show. It is an event where companies gather to debut their latest technology and gadgets for the coming year and the AI voice recognition expert debuted its in-vehicle voice assistant that allows users to order takeout for pick-up from their car.
Simply by speaking to a vehicle’s infotainment system, you can order from your local pizzeria, burger joint, and other food establishments. SoundHound, though, says food ordering is just the beginning. It eventually plans to introduce other capabilities such as banking transactions, ticket purchases, and making appointments.
Although the conversational AI tech stock says there is significant, latent demand for such a system, with more than half of all drivers saying they would use such a system, it seems the market was underwhelmed by SoundHound AI’s news.
24/7 Wall St. Insights:
- SoundHound AI (SOUN) stock has lost ground for three straight days and it accelerated yesterday with shares falling 16%.
- The AI voice recognition expert’s appearance at CES 2025 may have contributed to its fall, but there is a larger problem facing the company and its stock.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
A new era for in-car assistants
Now the debut of the in-car voice assistant did not come as a surprise. SoundHound had announced it would showcase the technology the day before CES 2025, which likely contributed to SOUN’s near-10% drop that day.
And last week SoundHound said luxury electric vehicle maker Lucid Group (NASDAQ:LCID) had launched Lucid Assistant, a voice assistant to control a number of vehicle functions, that was powered by SoundHound Chat AI. On the surface, these seem like developments that ought to boost SOUN’s stock, not contribute to its decline.
The problem is it actually highlights problems with SoundHound’s business and the high hurdles it needs to scale. They are daunting issues that don’t necessarily point to further growth.
In 2024, SOUN was one of the best-performing stocks on the market, rising 1,030%, but so far this year the stock has lost a quarter of its value.
The underlying problem with SoundHound AI
While SoundHound is seeking to expand its presence in the automotive industry, to be functional the company’s technology also needs to be present in restaurants (and banks, event venues, and service offices for its future capability add-ons). It estimates its total addressable market to be some 30 million businesses.
Sounds great, but as of the third quarter, it was in just seven of the top 20 fast-food restaurants. Although that represents potentially tens of thousands of locations (as most quick-serve chains are franchised they may not all have the technology), it needs to be able to connect the cars, restaurants, and other businesses together for the technology to seamlessly work.
Yet SoundHound may not be the best option to achieve this. Many, if not most restaurants already use Apple‘s (NASDAQ:AAPL) Apple Pay and you can check which restaurants accept it simply by using Maps. You can also see what’s on their menus from within that system making ordering already a fairly seamless process.
The same is true with Alphabet‘s (NASDAQ:GOOG)(NASDAQ:GOOGL) Google, which has Google Pay, and Google Maps is pervasive. Both tech giants now have significant AI capabilities, and while SoundHound has developed voice assistants, Siri and Google Assistant already allow for food ordering.
With these capabilities already built into most vehicles, and most restaurants (and other businesses) already integrated into them, they are a much better platform for the sort of technology SoundHound is developing.
Key takeaways
SoundHound AI is also not a profitable business and has never been over its 20 years of operation. Losses are also widening. The dramatic run-up in its stock over the past year was an unwarranted value escalation relative to its fundamental business.
When Nvidia (NASDAQ:NVDA) CEO Jensen Huang critiqued the quantum computing industry as not ready for prime time for at least another 20 years, it took the wind out of the sails of a lot more stocks than just quantum computing stocks. It indicated stock valuations for many of these untested, emerging companies had gotten too far ahead of themselves and they just might not keep growing exponentially.
The air is getting let out of SoundHound AI’s stock and that’s why it cratered yesterday. It also means SOUN’s decline may not be over yet.
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