SoundHound AI (SOUN) shares faced a turbulent day on Monday, ultimately closing down 4.6% despite earlier gains that saw the stock up as much as 7.8%. The market as a whole also experienced a downturn, with the S&P 500 index falling 1.8% and the Nasdaq Composite index dropping 2.7%.
The sell-off in SoundHound AI stock appears to be driven by two primary factors: growing apprehension regarding the valuation of artificial intelligence (AI) companies and broader macroeconomic anxieties. Recent reports indicated that China is continuing to acquire advanced AI processors from Nvidia through third-party vendors, circumventing U.S. export restrictions. Furthermore, investor sentiment deteriorated after President Trump confirmed new tariffs on Canada and Mexico, set to take effect the following day.
Considering the recent volatility, is this a good time to consider investing in SoundHound AI? Evaluating the stock involves acknowledging its inherent high-risk profile. While SoundHound AI has established an early presence in the conversational AI market, the sector remains relatively nascent and is attracting increased competition, particularly from companies with substantial resources. Amazon, for instance, recently unveiled its next-generation conversational Alexa service, generating significant positive feedback.
Additionally, even after the recent sell-offs, SoundHound AI continues to trade at a valuation heavily reliant on future growth. Based on current projections, the company is valued at approximately 24.6 times its expected sales for this year and is not anticipated to achieve profitability until 2025.
However, this valuation dip arrives on the heels of a relatively positive fourth-quarter earnings report released last week. The company’s sales surpassed expectations, and SoundHound AI increased its sales guidance for the current year, projecting revenue to be between $157 million and $177 million — a $2 million increase on both the high and low ends of the previously announced range.
SoundHound AI remains a volatile and speculative stock that is likely to experience continued price fluctuations. Although a risky investment, the stock’s recent decline, coupled with the company’s Q4 performance and raised sales expectations, may present a more appealing entry point for investors willing to accept the associated risk.
