There’s no easy path to riches in the stock market. Life-altering investments often come with a dose of volatility. Consider it the price of admission when dealing with high-risk, high-reward stocks.
SoundHound AI (SOUN) has shown impressive gains, rising 150% over the past year. Yet, it’s still down roughly 55% from its all-time high in December. The challenge for investors—the key to finding those potentially millionaire-making stocks—is identifying companies with the fundamental business strength to recover and achieve new highs. Investors currently see this with SoundHound AI. The company presents a promising narrative, but now it needs to translate that into solid revenue growth and profitability. Does this recent pullback offer a buying opportunity? Here’s what you need to know.
Why SoundHound AI Stock Dropped
The reason for SoundHound AI’s fall is relatively straightforward. The company is a growing, albeit speculative, entity focused on developing voice and sound artificial intelligence (AI) for vehicles, drive-throughs, and other applications. In late December, the stock’s valuation became exceptionally high, peaking at a price-to-sales ratio (P/S) of 110. This made it one of the most expensive stocks on Wall Street. Such high valuations are difficult to maintain because they create expectations that are nearly impossible to meet. Investors then appeared underwhelmed by the company’s presentation at CES 2025 in early January. Though a product showcase tells little about the underlying fundamentals, it fueled a sell-off given the already high valuation. The drop reflects a stock that had simply gotten ahead of its business fundamentals. Arguably, no stock, regardless of how strong the underlying business, should trade at over 100 times its revenue. This is unsustainable and doesn’t reflect business quality.
SoundHound AI: A Promising but Imperfect Business
There is much to like about the business, starting with its growth trajectory. The company is experiencing significant expansion after acquiring Amelia in late 2024, broadening its reach into new applications. This acquisition provides an existing customer base. The results? Revenue jumped from roughly $85 million in 2024 to a projected range of $155 million to $175 million in 2025. Management estimates that SoundHound AI’s addressable market is as large as $140 billion, indicating ample growth potential. However, the company must continue to develop in new areas like call centers, retail, electronic devices, and other markets. Its long-term potential will depend on how well it can execute as it competes with other firms, including some in the “Magnificent Seven” that also offer audio-based AI solutions.
The key to success hinges on the financial performance of SoundHound AI. The company must demonstrate its ability to become profitable while maintaining its growth. Its daily operations have burned just over $75 million in cash through the first nine months of 2024, so the business is far from generating positive cash flow, let alone net income. Until investors see a clear path to profitability, the stock may find it hard to maintain a high valuation.
Is SoundHound AI a Millionaire Maker Now?
If you are confident in a company buying its stock at a lower price is often more advantageous because future growth is less likely to be fully priced in. SoundHound AI’s P/S has decreased to roughly 24 (based on its 2025 revenue guidance). While this appears better than a few months ago, it’s still costly at today’s prices. For instance, SentinelOne, a growing but currently unprofitable cybersecurity company, trades at a ratio of about 7 times its estimated revenue for this year. Therefore, if SoundHound AI were to trade at the same level as SentinelOne, it would have to fall approximately 70% from current levels. Even if such a drop doesn’t transpire, this wide range of valuations for comparable stocks highlights the potential risks for buying shares currently. A potential millionaire-maker stock is already riskier than most investments. Nonetheless, investors should strive to find stocks that have both upside and valuations that leave room for significant returns. SoundHound AI’s elevated valuation leaves too little potential for the inherent risks involved leading to a poor choice for anyone seeking that kind of return.
