Investing

SoundHound Is Down 25% After Nvidia Dumped the Stock. Time to Buy?

Rich Duprey

Published: February 14, 2025 12:18 pm

Shares of AI-driven voice recognition expert SoundHound AI (NASDAQ:SOUN) were crushed after Nvidia (NASDAQ:NVDA) revealed it had completely dumped its stock. It was hardly the love note investors were expecting to receive on Valentine’s Day.

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Yet now that SoundHound AI has to stand or fall on its own merits, and not glide along on the halo of Nvidia’s investment, should investors buy the stock at this newly discounted price?

Can you hear me now?

There is little question that artificial intelligence has been the driving force behind the stock market’s sustained two-year bull market. While Nvidia has largely been responsible for much of the gains, SOUN stock also put on a masterclass performance last year.

One year ago, the company arguably best known for its music recognition app, was a penny stock. today, even after the haircut, it is valued at over $4.3 billion. SoundHound has increasingly expanded its technology’s presence in a wide variety of applications. It appears in restaurant ordering platforms and in the automotive industry. It just announced an expanded partnership with luxury electric vehicle manufacturer Lucid Group (NASDAQ:LCID).

SoundHound has plans to grow even more. It sees its technology appearing in banks, service offices, and at event venues. As AI grows and companies become more familiar with and adopt the technology, SoundHound sees its market as almost limitless.

A cacophony of competition

Yet there are problems with its grandiose vision. The field is growing crowded and large, better funded rivals could and likely will grab a larger share of the market, if only because companies are already familiar with them and are widely accepted by the public.

Apple‘s (NASDAQ:AAPL) Apple Pay service, for instance, is already widely used by the restaurant industry and customers can already check its availability by using Apple Maps. You can also see menus from within that environment and pay for the order. Incorporating voice recognition to place the order could be a relatively easy extension.

Similarly, Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) offers the same convenience through Google Pay and Google Maps. And both already have voice assistants in Siri and Google Assistant that allow for ordering and shopping at retailers. Alexa from Amazon (NASDAQ:AMZN) does so as well.

Fuel for the fire

More problematic is SoundHound’s finances. While revenue is growing sharply, up 89% in the third quarter to $25.1 million, the voice recognition stock remains unprofitable.

SoundHound has been in business for 15 years and hasn’t figured out a way yet to make a profit off of its technology. And losses keep growing.

On a GAAP basis, SOUN stock’s third-quarter net loss was $21.8 million, 45% worse than the $15 million loss it reported in the prior year. And on an adjusted basis losses before interest, taxes, depreciation, and amortization more than doubled in the period to $15.9 million. Year-to-date it posted net losses of $92.1 million, worse than last year’s $70.9 million loss.

SoundHound is also burning through cash. Over the past year, the voice specialist burned through $90.4 million in cash and has a negative free cash flow margin of 134%. That means for every $100 SoundHound made, it ignited $134 in cash. It’s simply not sustainable.

Wall Street warmed up to SOUN

Now, as it increases its partnerships like the one with Lucid and other automakers, and places its technology in more locations, it could achieve profitability. But so far, the more it sells, it loses even more.

Yet is SOUN stock so depressed that it’s too cheap to ignore? Not really. At 66 times sales, it is not inexpensive. 

That hasn’t stopped Wall Street analysts from slapping a buy recommendation on the stock though. There are seven analysts covering SoundHound AI and they have a one-year consensus price target of $12.36 per share. That implies there is 12% upside in the stock.

Key takeaways

I’ve argued previously SOUN stock is better as a buyout candidate than a long-term buy-and-hold position. Because its technology is very good, that would be attractive to another bigger company that might want to quickly break into the market. With sufficient financing and a larger presence, it could make a better go of it than SoundHound can on its own.

That’s why with SOUN stock tumbling 25% on losing the Nvidia endorsement, even though it’s probably overblown, has me saying investors should sit on the sidelines.