Buy SoundHound AI Stock, Down 47% From Its High?

One of the hottest AI stocks this year is SoundHound AI (NASDAQ: SOUN). Its 2024 stock price performance is 154%, compared to 81% for Nvidia. The chipmaker's investment in SoundHound coincided with the stock's rise earlier this year. Recent weeks have seen SoundHound's stock lose some of its spectacular gains. Despite good year-end gains, it's down more than 47% from its all-time high of $10.25.  

SoundHound's business is intriguing but risky. Sound Hound can be a great AI business by developing AI-customer conversations. Drive-thrus ordering can be faster and more accurate with Sound Hound's technology. Top brands like White Castle and Krispy Kreme use the platform. Sound Hound's platform helps electric vehicle manufacturers improve hands-free driving.  

The company's recent revenue gain of 80% over last year seems promising. Sales of $17.1 million in the last three months of 2023 crushed the previous year's $9.5 million. Sales grew 47% to $45.9 million for the year.  

However, its $18 million net loss last quarter exceeded sales, making the enterprise unprofitable. SoundHound's hefty R&D ($12.7 million) and general administrative ($7.6 million) costs alone would have wiped out any profit last quarter, not to mention its sales and marketing ($4.5 million) and cost of goods sold ($3.9 million).  

High costs are common for startups, but investors should be wary of large losses, especially when they exceed income. Positively, operating expenses dropped 23% year-over-year. Without stronger financials, investors risk that the firm needs to issue stock to support its operations, which dilutes the share price and lowers it.  

The stock remains expensive. SoundHound's stock price has declined in recent weeks, but it's not inexpensive. Its price-to-book multiple is 130 and over 30 times sales. Some investors are betting that the company's AI platform can boost revenue in the future. Since the company has grown well, it may not continue. Revenue growth will make it harder to grow. Since AI has such high development potential, competition will be severe.  

Is SoundHound AI stock worth buying? Nvidia's support gives investors hope that SoundHound is real. But that doesn't mean it's safe. Despite Nvidia's risk tolerance, SoundHound isn't a good investment for normal investors.  

At under $2 billion, it's a small mid-cap stock. Given that many investors may assume it's too late to invest in AI stocks like Nvidia and other established companies, SoundHound may be an appealing option now.   

However, given the stock's risk, this is not a surefire investment, and I wouldn't recommend investing money you can't afford to lose. Expect volatility if you buy in SoundHound AI stock and are comfortable with the risk.  

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