One of the key factors driving SoundHound AI’s (SOUN) impressive stock performance was Nvidia’s initial investment. This association with Nvidia provided immediate credibility for SoundHound in the competitive artificial intelligence (AI) landscape.
However, this dynamic has shifted. Recent filings revealed that Nvidia has sold its entire stake in SoundHound AI, along with making adjustments to other holdings. This move triggered a sell-off in SoundHound’s stock, as many investors interpreted Nvidia’s decision as a sign of underlying concerns. The question now is: Should investors echo Nvidia’s move, or is this a chance to buy the dip?
Nvidia’s Stake: A Matter of Perspective
It’s crucial to understand the scale of Nvidia’s investment in SoundHound. As of December 31, 2024 (the last date covered in the filing), Nvidia held 1.7 million shares, valued at $33.7 million. While that may seem substantial to the average investor, it’s a relatively small sum for Nvidia. In its most recent quarter, Nvidia generated $16.8 billion in free cash flow and held $38.5 billion in cash and short-term investments. Therefore, Nvidia’s decision to sell SoundHound stock might not reflect a fundamental assessment of SoundHound’s business prospects, but rather a strategic move to streamline some holdings related to business deals.
Considering this context, it’s possible this is more of a market noise than a clear signal for SoundHound AI investors. With the audio stock down 45% in 2025 alone, it’s worth carefully evaluating whether this is a major opportunity.
SoundHound’s Growth Potential
SoundHound AI specializes in audio recognition software for AI models, a field with significant growth potential. The company’s recent financial performance supports this optimistic outlook. Revenue increased by 89% in the third quarter. While official Q4 results and 2025 guidance will be released on February 27, management has already given preliminary guidance, with expectations of revenue between $155 million and $175 million in 2025. With 2024 revenue projected to be between $82 million and $85 million, this translates to a potential doubling of revenue in 2025.
Valuation Concerns
Despite the substantial sell-off, SoundHound stock remains expensive. Because the company isn’t yet profitable, its valuation is based on its sales. Currently, SoundHound trades at 50 times sales. Although this is a lower multiple compared to its recent peak, it remains higher than its valuation for most of 2024.
Admittedly, a price-to-sales ratio of 50 is quite high. However, this valuation may be somewhat justifiable given the expectation of revenue doubling in the coming year. Despite this promising growth, the stock faces considerable selling pressure. Moreover, investor sentiment may cool down after Q4 results, leading to further sell-offs. Investors who are keen to get on board might consider waiting for Q4 results, and then potentially enter the market. This will remove some of the hype, leaving a more solid foundation.
Long-term investors should exercise patience with SoundHound, especially if the Q4 results don’t meet expectations. Those with significant gains from the stock might also consider taking some profits. There are still uncertainties surrounding SoundHound AI, and investors should approach this investment with a careful and measured approach.
