Potential Issues Pose Threat to SoundHound AI's Stock Value
This year has been stellar for tech stock SoundHound AI (SOUN 15.38%), observing a substantial increase of over twice its initial value in 2024. However, there's been some hesitancy among investors recently. Over the past three months, SoundHound's stock has dropped by more than 25%.
This recent price crash might just be the precursor to a larger sell-off. Investors who are optimistic about SoundHound's potential due to Nvidia's backing and investment in the company should perhaps reconsider if the stock is worth purchasing at its current price level. A recent trend in the tech realm might further discourage growth investors regarding SoundHound's future prospects.
OpenAI's advanced AI chatbot takes the crown
SoundHound AI utilizes artificial intelligence (AI) to create a seamless conversation between humans and technology, be it at drive-thrus or within vehicles, serving as a bot that makes hands-free access easier for users. This has made the stock an attractive option for investors, especially given the strong belief of tech giant Nvidia in the company's business model.
However, one significant risk these investors face is that SoundHound AI may not be the only player in the field. There's a set of formidable tech companies it needs to outmaneuver to capture the market share. One such rival is ChatGPT's creator, OpenAI.
OpenAI has unveiled a new AI model, GPT-4o, boasting faster performance and more advanced capabilities than GPT-4. It now boasts enhanced vocal capabilities as well, enabling it to sing and translate conversations at unprecedented speed. The new AI model can respond to prompts in just 232 milliseconds – equivalent to a human's response time.
This stellar AI model from OpenAI already exists, and the addition of advanced vocal capabilities means it could pose a real threat to SoundHound AI's growth prospects. Microsoft, a tech giant, has already pledged a hefty investment of $13 billion into OpenAI, supporting this promising AI company.
While AI companies still have plenty of room for growth, investors might be expecting too much from SoundHound AI, accounting for both its valuation and astronomical growth this year.
SoundHound AI's stock: A risky bet given its uncertain future
Despite SoundHound AI's impressive performance in recent quarters, its revenue figures are still relatively modest. For the first quarter, which concluded on March 31, the company posted a 73% revenue growth, bringing its total revenue to $11.6 million. While the growth rate is commendable, the low revenue figure suggests the business is still somewhat unproven. Moreover, the reported revenue was lower than the company's revenue in the final quarter of 2023 ($17.1 million) and the third quarter ($13.3 million).
Additionally, SoundHound AI remains unprofitable, incurring a net loss of over $97 million in the previous 12 months. Furthermore, the company's cash outflow from daily operations exceeded $75.7 million during that time period. As SoundHound invests further into its operations to stay competitive against larger tech companies, both its losses and operational burn rate may escalate, rendering the stock an even riskier investment.
Considering the steep valuation of $25 times its trailing revenue, SoundHound AI's stock arguably should trade at a lower price considering the perils the company faces in the long run.
Is SoundHound AI stock worth buying?
SoundHound AI's stock has been a hot commodity this year, but much of this success can be attributed to Nvidia's investment. Without the news, the stock may not have been as successful on its merits alone. Investors ought to always be reminded of how the business is faring and what challenges it faces.
Although investing in AI startups can be thrilling, it also comes with inherent risks. It's too early to determine whether SoundHound AI will ultimately be a solid performer, which means investors may wish to postpone their purchases given the unclear financial status of the company.
The road ahead for SoundHound AI might be tough, and unless its financials significantly improve, it wouldn't be surprising to see its shares continue to plummet in the coming weeks and months.
In light of OpenAI's advancements in AI technology and Microsoft's substantial investment, some investors might reconsider whether SoundHound AI's stock is a worthwhile investment, considering the potential threat to its market share.
Given SoundHound AI's modest revenue figures, unprofitable status, and high valuation, investors might want to exercise caution before purchasing its stock, especially considering its uncertain future prospects.
