Why SoundHound AI Stock Skyrocketed 26% Last Month and Has Kept Soaring in September

Key Points

• SoundHound AI surged last month after a very strong Q2 report.

• The stock did see some pullbacks after earnings, but it regained its momentum later in the month.

• SoundHound AI stock has posted a double-digit gain across September's trading.

• 10 stocks we like better than SoundHound AI ›

SoundHound AI (NASDAQ: SOUN) stock recorded huge gains across August's trading and has kept rallying. The company's share price rose 26% last month.

SoundHound's big gains in August stemmed from a blockbuster earnings report. While the company's valuation saw some pullbacks in post-earnings trading in response to concerns about valuations for artificial intelligence (AI) stocks, bullish momentum resumed as the month progressed.

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SoundHound AI soared on strong Q2 results

SoundHound AI published its second-quarter report after the market closed on Aug. 7, and the conversational AI specialist delivered results that crushed the market's expectations. The company reported a non-GAAP (generally accepted accounting principles) adjusted loss of $0.03 per share on sales of $42.7 million in the period, beating the average Wall Street analyst estimate's call for a per-share loss of $0.05 on sales of approximately $32.9 million.

SoundHound's sales increased roughly 217% year over year in the second quarter. While the company's adjusted gross margin fell to 58.4% from 66.5% in the prior-year period, the big sales beat in the quarter was more than enough to offset the margin decline when it came to shaping movement for the stock. Following the Q2 release, SoundHound AI received ratings upgrades and price-target increases from multiple analysts.

SoundHound AI did see some valuation pullbacks in post-earnings trading last month, but it reclaimed its big gains as the month progressed. Sell-offs in the period stemmed from a report from the Massachusetts Institute of Technology (MIT) stating that 95% of the businesses it studied had yet to achieve profitability on their generative AI integrations. Reports showing that inflation was coming in hotter than expected and could accelerate in the consumer side of the economy also played a role in pullbacks.

What's next for SoundHound AI?

SoundHound AI stock has kept surging in September's trading, with the stock now up 14.3% in the month so far. Bullish momentum for tech stocks, in conjunction with expectations that the Federal Reserve will cut interest rates later this month, has helped facilitate gains for the company's share price.

On the heels of its strong Q2 results, SoundHound AI raised its full-year performance outlook. The company is now targeting annual revenue between $160 million and $178 million and said that it expects strong growth to continue following the second quarter. If the business were to hit the midpoint of management's sales target, it would mean delivering annual growth of 99.5% compared to the $84.7 million in sales recorded last year. For comparison, the business recorded annual revenue growth of 85% in 2024.

SoundHound's business is scaling rapidly, and the company has been managing to expand its sales footprint in a relatively cost-effective fashion. While the stock still looks like a high-risk play, trading at approximately 36.4 times this year's expected sales, the company's recent sales momentum suggests shares could still offer upside.

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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.