SOUN Stock Down 63.1% YTD: Buying Opportunity for AI Investors?
SOUN Stock's YTD Performance
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Following President Donald Trump's imposition of hefty tariffs on all imports to the United States, China on Friday struck back with a 34% tariff on U.S. goods. The tariffs will begin on April 10.Again, SoundHound is facing a class action lawsuit filed by the law firm Kessler Topaz Meltzer & Check. The suit alleges that SoundHound misled investors about the strength of its internal financial controls, particularly regarding the accounting of its acquisitions of Synq3 and Amelia Holdings. The company had claimed to have resolved issues in financial reporting but later admitted that it lacked adequate systems to manage complex financial situations. These alleged misstatements led to a delay in filing its 2024 financial report and corrections to inflated goodwill figures.In a statement released Friday, the law firm Wolf Haldenstein Adler Freeman & Herz LLP announced that a class action lawsuit had been formally filed against SOUN, representing all individuals and entities that purchased the company's shares between May 10, 2024, and March 3, 2025.
SoundHound shares are trading below the 50-day and 200-day moving averages, indicating a bearish trend.
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That's a significant decline, and investors are likely questioning whether the worst is over. Could this be a good opportunity to invest in this AI stock now? Let's analyze the company's prospects.
One of the key developments for SoundHound has been its focus on reducing its reliance on a small set of clients. Notably, the company earlier generated more than 90% of its revenues from just five customers, that figure has now fallen to about one-third. Its largest customer accounted for just more than 14% of revenues in 2024, a major improvement from nearly 50% in 2023—signaling noteworthy progress in reducing customer concentration.This major reduction in customer concentration is underpinned by an expansion into several new verticals and customer categories. In healthcare, notable wins such as Duke Health and Wellstar Health System signal meaningful traction, while in the restaurant sector, deployments with Burger King in the UK and Whataburger reflect continued momentum.SoundHound has also secured new accounts in the energy sector, including one of the largest electric utilities in the United States. Additionally, it has begun deployments in government sectors, such as the City of Coral Springs and a branch of the U.S. military, in collaboration with General Dynamics GD. This diversification strengthens the company's revenue base, making it more resilient to individual account fluctuations and better positioned for stable, scalable growth.
SoundHound made a strong impression at CES with its first official booth, drawing continuous interest from tech leaders and innovators. The company highlighted collaborations with major players such as NVIDIA NVDA, Perplexity, Lucid Group, Inc. LCID and LG, along with restaurant industry partners. These partnerships underscore SoundHound's leadership in creating transformative voice solutions. SoundHound has expanded its collaboration with NVIDIA by integrating NVIDIA AI Enterprise tools to enhance its voice AI capabilities. This partnership enables faster, low-latency processing, real-time retrieval-augmented generation, and scalable AI model optimization. The integration is already being used in automotive applications, such as Lucid Motors' voice assistant, to improve response times and user interactions. SoundHound AI plans to broaden the use of NVIDIA AI software in more modules to further advance automotive voice technology.Notably, SoundHound's automotive segment is experiencing solid momentum, with a record number of Requests for Proposals and Proofs of Concept underway. The company has secured partnerships with four electric vehicle brands, including Lucid Group and Togg. Existing customers are also enhancing their offerings by upgrading to SoundHound Chat AI Automotive, which integrates generative AI and offers increased royalties per unit.
SoundHound is targeting expansive serviceable markets across its core and emerging verticals, providing ample runway for future expansion. In automotive, the global production of more than 90 million light vehicles annually translates into a multi-billion-dollar repeatable revenue opportunity. The restaurant sector offers an equally compelling scale, with more than 75 billion transactions globally for pickup, delivery, and drive-thru orders, representing an estimated $5 billion revenue opportunity in the U.S. drive-thru market alone.Beyond these core areas, SoundHound sees significant potential in healthcare, retail, and energy, where trillions of interactions occur annually, ripe for automation and AI enhancement. The recent entry into the energy vertical with a seven-figure, multi-year deal underscores the company's capacity to penetrate new markets effectively. These sizable total addressable markets, combined with SoundHound AI's expanding footprint, reinforce the company's trajectory toward capturing meaningful share in high-growth sectors.SoundHound AI grew its revenues by 101% to $34.5 million in the fourth quarter. The company anticipates this business momentum will continue into 2025. SOUN expects revenues between $157 million and $177 million for 2025, indicating 97% year-over-year growth.
SoundHound AI's introduction of its third strategic pillar, the voice commerce ecosystem, marks a transformative step in its business evolution. This builds upon the first pillar, its voice assistant platform, and the second, its AI-powered customer service solutions. The newly introduced ecosystem enables users interacting with SoundHound's voice assistant to seamlessly transact with businesses utilizing its AI customer service tools.The company showcased this capability at CES, where it demonstrated an end-to-end experience of a driver discovering and ordering food through their in-vehicle voice assistant. The market response has been immediate and promising, with multiple proof-of-concept engagements already underway involving two major Japanese automakers, two German automakers, and several U.S. and Korean OEMs. National restaurant chains have also expressed eagerness to participate. This ecosystem creates a virtuous cycle: as more OEMs adopt SoundHound AI's voice assistant, businesses are increasingly incentivized to join the platform, amplifying monetizable interactions and strengthening SoundHound's commercial momentum.
SOUN shares are currently overvalued, as suggested by its Value Score of F. In terms of its forward 12-month price-to-sales (P/S) ratio, SOUN is trading at 16.41, higher than the Zacks Computers - IT Services industry's 15.73.
Price/Sales (F12M)
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Analysts are growing increasingly optimistic about SOUN's earnings potential. Over the past 60 days, the Zacks Consensus Estimate for SOUN's 2025 loss per share has narrowed to 16 cents per share from 27 cents, reflecting a positive shift in sentiment.Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
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The company's efforts to diversify its customer base, expand into new verticals, and forge high-profile partnerships suggest a proficient approach to mitigating risk and fostering long-term growth. Management's revenue expectation for 2025 calls for about 97% growth year over year. That's a major jump, and it would be great for the company upon successful materialization. Also, the company's growing backlog of nearly $1.2 billion, with an average contract duration of more than six years, provides some visibility into future revenue streams. Also, analysts' upward revisions to bottom-line estimates and the company's strong revenue growth projections point to improved confidence in its future performance.Analysts remain bullish on SOUN stock, with three out of six rating it a "Strong Buy." The stock's average price target of $14.42 implies a 97% upside from its latest closing price.
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However, near-term concerns such as the ongoing class action lawsuit and current overvaluation may weigh on investor sentiment. SOUN currently has a Zacks Rank #3 (Hold), indicating a balanced risk-reward profile, making it reasonable for investors to wait for more clarity while staying invested. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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