Is SoundHound AI Stock a Buy?

Key Points

• SoundHound AI trades at about 38 times trailing revenue, and the business remains deeply unprofitable.

• The company is collecting extra cash by selling lots of extra shares while the stock is hot.

• You must accept a heavy dose of risk at a lofty share price in order to buy this stock right now.

• 10 stocks we like better than SoundHound AI ›

I've been standoffish on SoundHound AI (NASDAQ: SOUN) for almost a year now. I love what the company is doing and see tremendous long-term value in the stock, but the share price has been way too rich since a meme stock surge in December 2024.

The worst of last year's overheating has subsided, and SoundHound AI keeps making strides in its business results. Is the stock a good investment at this point?

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Let's take a look.

SoundHound AI by the numbers

I can't ignore one simple fact: This is still an expensive stock.

SoundHound AI trades at a lofty 38 times trailing sales, and its profits are consistently negative. I mean, the company reported a $78 million operating loss in the second quarter of 2025, based on $42.7 million in top-line revenues.

Some of that financial pain comes from noncash accounting adjustments, but there's some real substance to other line items. The cost of revenues rose from $5 million to $26 million. Sales and marketing expenses nearly tripled.

As a result, SoundHound AI is burning actual cash, too. Operating cash flow was -$18.5 million. So the company is keeping the lights on (and building a robust cash reserve, in all fairness) by selling new shares while they're pricey.

And that's not good news for existing shareholders such as yours truly. The diluted share count rose by 21% over the last year, undermining the effective stock returns by a similar percentage.

Can SoundHound AI's upside outweigh the crushing downsides?

So far, not so good. SoundHound AI's stock trades at a nosebleed-inducing price despite weak revenues and deep bottom-line losses. What's the upside to this artificial intelligence (AI) stock, then?

SoundHound AI is growing at a blistering pace. The skyrocketing administrative expenses are a necessary increase, since second-quarter revenues more than tripled year over year. And thanks to the cash-boosting combination of high share prices and high-volume sales of new stock, SoundHound AI can afford partnerships, acquisitions, and product development projects that used to be out of reach.

Moreover, most of the soaring sales are tied to long-term service deals or subscription-style contracts. The company used to report order bookings in every quarterly business update, last reported at $1.2 billion of unfilled long-term contracts by the end of 2024. Due to volatile shifts in this metric, management will only report it at the end of each fiscal year in the future.

But this is the meat and potatoes of SoundHound AI's revenue growth recipe -- a billion-dollar balance of subscriptions that will convert into actual revenues over a multiyear period. Including this incoming pile of future revenues in your market-value calculations makes SoundHound AI's stock more palatable. With a $5 billion market cap today, the stock trades at approximately 4.2 times the latest backlog balance.

Image source: Getty Images.

Should you buy, sell, or hold SoundHound AI today?

SoundHound AI's business is growing by leaps and bounds. Its AI-driven voice controls are useful for carmakers, drive-thru window services, and phone-based menu systems, just to name a few target markets. I can imagine this company evolving into a tech giant with a large market footprint -- but it could take many years to reach that pinnacle.

Many things could go wrong in the meantime. The heavy stock dilution is one troublesome concern. And SoundHound AI's technology is today's top of the line, but what if someone else develops an equal or even stronger alternative? That all-important order backlog could dry up if this hypothetical rival starts snagging every available business opportunity.

So it's a risky investment today, and I don't think the market makers are accounting for these potential downsides in SoundHound AI's current valuation. I'm not selling my existing shares, but I'm not reaching for the "buy" button either. At this point, SoundHound AI falls right in the middle of the classic buy, hold, or sell ratings scale. Your mileage may vary, depending on your appetite for unprofitable sales growth.

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Anders Bylund has positions in SoundHound AI. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.