SoundHound AI Is Plummeting Today -- Is the Stock a Buy Right Now?

Key Points

• SoundHound AI stock is getting crushed today as a result of rising fears about the outlook for U.S. inflation.

• Home Depot's announcement that it plans to respond to tariff pressures with price increases is causing investors to focus on inflationary risk factors.

• SoundHound AI's growth-dependent valuation makes it a risky play in light of inflation dynamics.

• 10 stocks we like better than SoundHound AI ›

Amid significant bearish pressures facing the broader market, SoundHound AI (NASDAQ: SOUN) stock is suffering a big valuation decline in Tuesday's trading. The conversational artificial intelligence (AI) company's share price was down 10.5% as of 3:15 p.m. ET. At the same point in the day's trading, the S&P 500 had fallen 0.8%, and the Nasdaq Composite was down 1.6%.

SoundHound AI stock is rapidly losing ground today after Home Depot said that it will be raising prices on some of the products it sells as a result of tariffs. While that might not seem to have any immediate connection to the AI specialist's business, it raises some significant questions about the broader picture for the U.S. economy and valuations across the stock market.

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Home Depot is the U.S.'s leading retailer in a category that is also directly adjacent to the broader real estate market, and investors and analysts often look to the company's business results and guidance as a broader macroeconomic indicator. With the company saying that it plans to raise prices, investors are worried that a recent acceleration for inflation among wholesalers is poised to trickle down to the consumer economy. If that winds up being the case, it could create a much tougher environment for growth-dependent tech stocks.

Is SoundHound AI stock a buy right now?

With SoundHound AI trading at roughly 30 times this year's expected earnings and still not posting profits, the company's valuation has a high level of sensitivity to unfavorable macroeconomic developments. After the Producer Price Index (PPI) report published by the Bureau of Labor Statistics (BLS) showed inflation at the wholesaler level that came in way above forecasts, Home Depot's announcement of pricing increases is intensifying fears that consumer-level inflation and overall inflation in the U.S. are poised for significant upticks that could cause the Federal Reserve to adopt a slower schedule for interest rate reductions.

In general, I think that the recent reads on inflation pose substantial near-term risks to highly growth-dependent tech stocks and other speculative plays. Along those lines, SoundHound AI stock could face more big sell-offs if unfavorable inflationary indicators continue to mount.

On the other hand, SoundHound AI has been posting very impressive sales growth momentum and appears to have a huge runway for long-term expansion. Given its strong sales expansion and category-leading tech offerings, I think the company stands out as a better buy than many other speculative AI plays -- and pullbacks could be worthwhile buying opportunities for risk-tolerant investors.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.