With SoundHound AI Stock Down 41%, Should You Buy the Dip?

SoundHound AI (NASDAQ: SOUN) had a terrific 2024. Last year, shares spiked in value by more than 800%. So far in 2025, it's been a different story, with shares losing more than 40% over a span of just five months. And yet when you look at analyst expectations for revenue growth, the picture looks extremely rosy, with 87% sales growth expected this year.

Could this be your chance to buy into a high-growth AI stock on the cheap? Yes, but there are two risks you'll want to understand before jumping in.

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SoundHound AI will grow tremendously in 2025

The AI revolution is in full swing. Spending on AI technologies is expected to accelerate in the years to come despite a strong upward trajectory in both 2023 and 2024. According to one estimate, the AI market is expected to grow from around $370 billion in value today to more than $2.4 trillion by 2032. That's a compound annual growth rate of more than 30% for nearly a decade!

Companies like SoundHound should benefit immensely from this rise in spending. As its name suggests, SoundHound's business model revolves around sound. More specifically, it has developed a voice AI suite that can help companies integrate voice AI into their own businesses. Drive-thru windows are a prime example, as are customer support lines and in-vehicle personal assistants.

SoundHound has already signed on partners including Applebee's, Honda, and Planet Fitness to pilot its technologies in all of these use cases. By integrating AI voice assistants into these verticals, SoundHound believes customers can lower costs while increasing efficiency and customer satisfaction over the long term.

SOUN Revenue (TTM) data by YCharts

Unsurprisingly, SoundHound's revenue has taken off with the rest of the AI industry. This year, analysts expect sales to jump by nearly 90%. Another 25% jump is expected in 2026.

Long term, SoundHound has a large total addressable market. Most estimates believe the voice AI market will be worth somewhere between $40 billion and $50 billion over the next decade, growing at a similar annual rate as the rest of the AI market. With a total sales base of just $102 million, SoundHound should be able to maintain double-digit sales growth for years to come. But before you jump in, make sure you understand the key risks involved.

Image source: Getty Images.

Be aware of these 2 risks before buying SOUN stock

SoundHound should experience heavy growth in the years to come. But the market has already priced in much of this growth. Shares trade at an astounding 42.6 times sales. Plus, the company's research and development budget pales in comparison to better-funded Big Tech competitors. Over the last 12 months, the company has invested just $80 million into R&D. That compares to gigantic multibillion-dollar R&D budgets for Big Tech peers.

SOUN PS Ratio data by YCharts

Does all of this mean that SoundHound stock is too expensive and that the business will fail in the face of better-financed competitors? Not exactly. The multibillion-dollar research and development budgets commanded by Big Tech competitors largely aren't dedicated to voice AI applications. And the portion that is often isn't meant to compete directly with SoundHound. Apple's Siri assistant, after all, isn't in use at drive-thru windows or customer support lines.

Meanwhile, even high upfront valuations can be justified with enough growth. After factoring in the next two years of expected growth, SoundHound would trade at less than 20 times projected sales. That's still pricey, but far less than today's valuation portrays.

Should you buy the dip on SoundHound? Only if you're an aggressive growth investor looking for maximum upside. You'll also need an investing horizon longer than your average stock -- think five to 10 years minimum. With a market cap of only $4 billion, SoundHound's upside potential is clear. But investors should expect heavy volatility and the potential for heavy downside.

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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Planet Fitness. The Motley Fool has a disclosure policy.