Is SoundHound AI Stock a Buy Now?

The artificial intelligence (AI) sector remains a great area to invest in. The industry is forecast to hit $255 billion in 2025 and grow rapidly to a jaw-dropping $1.7 trillion by 2031. But that doesn't mean all AI stocks are good investments.

Take, for example, the curious case of SoundHound AI (NASDAQ: SOUN). Last December, the company's stock reached a 52-week high of $24.98. Yet about a year later, shares have lost more than half their value. This is despite SoundHound reporting record third-quarter revenue of $42 million.

Does the fall in share price suggest avoiding the stock? Or perhaps the drop means now is the time to invest in this tech business focused on voice-enabled AI? Let's dive in to find out.

Image source: Getty Images.

SoundHound's trek toward business growth

SoundHound shares have not only dropped dramatically from their 52-week-high, the stock is down about 40% in 2025 alone due to several factors. One is a series of acquisitions that helped its business grow, but also increased operating costs.

Consider that SoundHound began life as a music identification app in 2006, with the goal of using AI to make voice conversations with technology simple and seamless. As a result of its acquisitions, such as Amelia in 2024 and Interactions this year, SoundHound now provides voice-activated tech solutions across diverse industries, including restaurants, retail, finance, and healthcare.

The acquired businesses helped SoundHound expand its customer base and strengthen its agentic AI offerings. This resulted in record Q3 revenue of $42 million, which represented a 68% year-over-year increase. The strong sales growth led to SoundHound raising its full-year revenue outlook to a range between $165 million to $180 million. That guidance represents a substantial increase over the $84.7 million generated in 2024.

However, the acquisitions caused Q3 operating costs to soar from 2024's $58.9 million to $157.9 million in 2025. This resulted in a Q3 operating loss of $115.9 million, up from the previous year's loss of $33.8 million.

The huge increase in operating expenses against Q3 revenue of $42 million is quite a gap, indicating SoundHound's sales are a long way from covering the costs to run its business. Consequently, this situation contributed to the company's share price decline.

SoundHound's path to financial strength

SoundHound is working to reduce expenses and reach profitability. According to CFO Nitesh Sharan, the company anticipates "acquisition cost synergies of roughly $20 million on an annual run-rate basis" in 2026.

Moreover, Sharan expects SoundHound to reach profitability on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis in Q4 if the high end of the 2025 guidance can be achieved. The company exited Q3 with an adjusted EBITDA loss of $14.5 million.

SoundHound also benefits from a solid balance sheet. Total assets were $702.2 million, with cash and equivalents of $268.9 million. Total liabilities were $303 million, with no debt.

A key factor in evaluating SoundHound stock

SoundHound has made significant strides since its days as a music recognition app. Yet its stock price decline was driven by more than just high operating costs. Another key factor involves its lofty share price valuation.

This can be seen by looking at the stock's price-to-sales (P/S) ratio, which measures how much investors are willing to pay for every dollar of revenue produced over the trailing 12 months.

Data by YCharts.

The chart shows SoundHound's P/S ratio is down quite a bit from the start of 2025, but is still elevated compared to historical levels. In fact, the company's sales multiple is higher than AI leader Nvidia's 25, which suggests SoundHound stock remains overpriced.

The company's expensive shares mean now is not a good time to buy. It also explains why SoundHound's stock fell from its high, as investors became unwilling to pay a premium for its stock.

Until the company starts to get its expenses under control and achieves adjusted EBITDA profitability, the strong sales growth alone isn't enough to justify the elevated valuation. As a result, it's best to wait for the share price to drop before deciding to invest in SoundHound.

Robert Izquierdo has positions in Nvidia and SoundHound AI. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.