Is SoundHound AI Stock a Buy on the Dip as Revenue Continues to Soar?

It's been a volatile year for SoundHound AI (NASDAQ: SOUN), and that continued last week after the stock price fell following the artificial intelligence (AI) voice-focused company's first-quarter results.

With revenue continuing to surge, some investors may be wondering if there is a buy-on-the-dip opportunity here. Let's dig into the company's results and prospects to see whether this stock has long-term potential that the markets are missing.

LivePerson acquisition adds intrigue

SoundHound continued to show strong revenue growth in Q1, with revenue climbing 52% to $44.2 million. Some of that climb can be tied to organic automotive and IoT (Internet of Things) revenue, which surged 88%.

But what dominated the discussion on the earnings conference call on May 7 was the company's agreement to acquire LivePerson (NASDAQ: LPSN) back in April.

Image source: The Motley Fool.

LivePerson started out as a live-person customer service messaging platform and has since transitioned into the conversational AI space. The company, however, has struggled with net retention and a high debt load. SoundHound will use its cash to retire LivePerson's "highly discounted" debt, and the combined company will be debt-free.

More than anything, the deal will give SoundHound access to LivePerson's large customer base. It plans to modernize the company's platform and cross-sell its voice AI offering to LivePerson's customers. It expects to see some near-term revenue loss and is looking to turn around LivePerson's business within the next year or two, similar to what it has done with prior acquisitions.

With the deal expected to close in the second half of 2026, the company maintained its full-year revenue guidance of between $225 million and $260 million. Meanwhile, it expects the combined company to generate between $350 million and $400 million in revenue in 2027, with LivePerson contributing at least $100 million in revenue next year. However, this could be a conservative estimate, as analysts had projected LivePerson would generate $200 million in annual revenue prior to the acquisition.

SoundHound also recently launched its new agentic AI orchestration platform called OASYS. It said that the platform can create an entire fleet of AI agents within minutes and that the agents will continue to learn and improve over time. It will be powered by SoundHound's own proprietary AI model, Polaris, although it can orchestrate agents created by any model.

Despite strong revenue growth, SoundHound remains unprofitable. The company's adjusted earnings per share (EPS) was unchanged, with a loss of $0.06, while its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was a loss of $26.7 million, compared to a loss of $22.2 million a year ago.

Its gross margin was once again an issue, after previously seeing some nice improvement in the past few quarters. Per generally accepted accounting principles (GAAP), gross margin fell 540 basis points from 36.5% to 31.1% year over year and plunged 1,680 basis points from 47.9% in Q4. Adjusted gross margin slipped 110 basis points year over year to 49.7% and was down from 60.5% in Q4. SoundHound said its margins were impacted by true-up costs due to a third-party vendor that will not recur. It expects the move to proprietary AI models to be a big margin driver in the future.

SoundHound also continues to burn through cash. It had an operating cash outflow of $26.3 million in the quarter. It ended the quarter with $216 million in cash on its balance sheet and no debt.

Is the stock a buy on the dip?

With the LivePerson deal, SoundHound is deepening its presence in the customer service arena. Its acquisition of Amelia in August 2024 took it to this space, and now it is doubling down with LivePerson. The deal will give it access to a large customer base at a low price, from which it can look to sell its voice-based agentic AI platform.

Trading at a price-to-sales (P/S) multiple of about 9.5 times the high end of its 2027 revenue projection, the stock would not be expensive for its growth if it had a high gross margin, which it currently does not. Meanwhile, it is taking on another big acquisition and integration project.

Right now, SoundHound is going after a big opportunity, but it's juggling a lot. As such, I'd stay on the sidelines.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends SoundHound AI. The Motley Fool has a disclosure policy.