Is SoundHound AI Stock a Buy Now?

SoundHound AI's (NASDAQ: SOUN) stock is up more than 200% over the past year, thanks to many companies integrating its impressive conversational artificial intelligence (AI) platform into their businesses. The popularity of SoundHound's technology has sparked significant sales growth as well, boosting shareholder sentiment in the stock this year.

But it's not all sunshine and rainbows at SoundHound. The company has significant losses right now, and its expenses are growing.

Let's take a quick look at why some investors are excited about the company, but why it's probably best not to buy SoundHound AI stock right now.

Image source: Getty Images.

Why SoundHound is getting a lot of attention

SoundHound has impressive technology that's being used by leading companies across many sectors. For example, its conversational AI is used for everything from customer service to ordering and agentic capabilities at Chipotle, Lucid Group, Hyundai, and seven of the top 10 global financial institutions as customers.

The company works with many other customers as well, and in its second quarter (which ended June 30), its sales increased 217% to $42.7 million. That increase spurred management to increase the company's 2025 revenue guidance to $173 million, up from its previous guidance of $167 million, both at the midpoint.

Those impressive sales are notable, especially at a time when some AI companies are simply talking about their tech's potential, but have little to show for it when it comes to revenue. SoundHound's ability to attract new customers and improve sales at a healthy clip proves that the company is more than just a flash-in-the-pan AI stock.

Where SoundHound needs to improve

Clearly, SoundHound's conversational AI platform is a success with customers, and its recent revenue growth is impressive. But while rapidly rising sales are good, they're not increasing fast enough to offset the company's losses.

In Q2, SoundHound reported a loss of $0.19 per share, which was worse than its loss of $0.11 per share in the year-ago quarter, on a generally accepted accounting principles (GAAP) basis. Even on a non-GAAP (adjusted) basis, the company still reported a loss of $0.03 in the quarter.

But it's not just that SoundHound is unprofitable -- the company's gross margins are declining, and it has negative free cash flow. SoundHound's gross margins fell from 66.5% in Q2 2024 to 58.4% in the most recent quarter. And the company has a negative free cash flow of $25 million right now, making it increasingly difficult for the company to invest new money and expand its business.

I also think it's worth mentioning that SoundHound's stock is trading at a premium right now. The company's shares have a price-to-sales (P/S) ratio of about 53, which is far above that of another conversational AI company, Cerence, with its P/S ratio of 2.3, and another software AI stock, C3.ai, which trades at 6.7 times its sales.

Don't buy SoundHound AI stock right now

Despite the company's rising sales and impressive returns, I think it's better for investors not to buy SoundHound right now. The company's losses are significant, gross margins are declining, and its stock is priced for perfection.

Shareholders may be getting ahead of themselves on this one in part because there's a growing sentiment that artificial intelligence stocks can't lose. But investors should be wary of betting too eagerly on an AI company that's unprofitable and expensive. At some point, some of these sky-high AI valuations may start falling back to earth, and SoundHound's could as well if the company doesn't start turning around its losses.

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends C3.ai and Cerence and recommends the following options: short December 2025 $45 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.