Shares of SoundHound AI (SOUN 0.70%) have experienced a significant decline of over 50% compared to this time last year, prompting investors to reconsider the company’s long-term potential. As 2025 nears its conclusion, the company—known for its sound and conversational artificial intelligence technology—has not provided the positive vibes its investors may have hoped for. The volatility inherent in such an emerging and speculative stock, however, raises an important question: Should investors consider buying the dip?
The recent downturn in SoundHound’s stock price can largely be attributed to its high valuation, which has seen it positioned as one of Wall Street’s pricier stocks. A year ago, its price-to-sales ratio exceeded 109, reflecting elevated market expectations. When valuations reach such heights, they behave like a tightly stretched rubber band; any small disturbance can result in substantial price fluctuations. Thus, the current drop in SoundHound’s stock should not come as a complete surprise, particularly against a backdrop of increasing market uncertainty.
Despite this volatility, there are substantial reasons for investors to remain optimistic about SoundHound AI. The company originally focused its efforts on the automotive sector, providing AI technology that interprets hands-free commands in vehicles. However, it has successfully expanded its offerings to various industries, including restaurants, drive-thrus, banks, and call centers, through both organic growth and strategic acquisitions. This diversified approach positions SoundHound favorably against its competitors, including major players in the AI space such as Nvidia and Microsoft.
A particularly interesting aspect of SoundHound’s business model is its commitment to customer privacy. Unlike many rivals, the company allows customers to maintain control over their data, which may enhance its appeal to potential clients. As of the third quarter, SoundHound reported a remarkable 68% year-over-year increase in revenue, although it continues to operate at a loss—a common characteristic of fast-growing enterprises. Notably, SoundHound has zero long-term debt and maintains a cash reserve of $269 million, providing a financial cushion sufficient to support its operations for more than two years at the current burn rate.
Looking ahead, the future appears promising for SoundHound. The company estimates a total addressable market of $140 billion for conversation-based technology, a crucial element in the broader adoption of AI in consumer-facing applications. Even if SoundHound does not dominate the field, it has ample opportunity for growth and development over time.
At its current market cap of approximately $4.5 billion, analysts project that SoundHound will generate $168 million in revenue for the current fiscal year, with a projected increase to $233 million the following year. This translates to an estimated growth rate of about 39%, valuing the stock at just over 19 times next year’s revenue estimates. While this may not be categorized as a bargain, it is a reasonable valuation considering the company’s rapid growth trajectory.
Nonetheless, investors should brace for continued volatility in the stock price. If SoundHound AI continues to innovate and successfully attract enough business to sustain its growth, it may well evolve into a long-term winner in the AI landscape. For those willing to accept the risks associated with speculative stocks, there appears to be a compelling case for considering the current dip in SoundHound’s stock as a potential buying opportunity.
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