Is SoundHound AI Stock a Buy?

Key Points

• Vanguard has become SoundHound AI's largest shareholder through its huge index funds.

• The company just launched Vision AI, expanding beyond voice recognition into camera-based understanding.

• Despite strong business momentum, the risk-reward balance doesn't quite justify buying more shares at today's lofty price.

• 10 stocks we like better than SoundHound AI ›

Five months ago, SoundHound AI (NASDAQ: SOUN) was easing out of a supercharged meme stock surge. Shares traded at roughly $8 by the end of March, down from an unsustainable 52-week high of nearly $25. For a while, it was easy to recommend investing in this exciting company.

But things have changed. SoundHound AI's stock took off in recent months thanks to two stellar earnings reports and several big wins. As of Sept. 24, the stock had gained 107% since March 31 and 57% from June 30.

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Image source: Getty Images.

Can you guess SoundHound AI's largest shareholder? I sure couldn't!

I'm looking at these specific time spans for a reason, by the way. The Russell 2000 stock market index rebalances its holdings on a quarterly basis, and the Vanguard Total Stock Market ETF (NYSEMKT: VTI) updates its positions less frequently. SoundHound AI has posted large gains since the June reshuffling of Russell 2000 and the latest available snapshot of specific VTI holdings. As a result, the stock has become a top holding in the portfolios I just mentioned.

SoundHound AI makes up 0.22% of the Russell 2000 index today, putting it in the top 2.5% of the small-cap index's weighting.

In the Total Stock Market fund, Vanguard holds 11.7 million SoundHound AI shares. That position is worth $194 million right now, making it a minuscule 0.035% of this huge fund. It also makes Vanguard the top owner of the company's shares. Together with 10 of its smaller funds, Vanguard owns 8.9% of this stock.

I didn't expect that when I started this review. An ultrasafe index fund giant is the top shareholder of this volatile artificial intelligence (AI) stock. Market-cap weighted stock indexes can play funny little tricks sometimes.

But the burning question remains: Is SoundHound AI a good investment in September or has the stock jumped too high again?

SoundHound AI's recent wins

I do see some material improvements, supporting the bullish argument:

• The company obliterated Wall Street's revenue estimates in August's second-quarter report and boosted its full-year guidance for that metric. Second-quarter sales more than tripled year over year.

• Voice-controlled computer systems and conversational AI interactions are getting popular, and SoundHound AI is a proven leader in this field. Recent client contracts include restaurant chains Red Lobster and Dine Brands' IHOP, Chinese online giant Tencent, and three unnamed car brands in North America.

• In other news, SoundHound AI released a "visual understanding engine" called Vision AI, expanding the company's audio-based information and interpretation services to a different type of media. And if you're the kind of person who talks with your hands, that's OK -- the company applies the same back-end AI to visual and verbal data, looking for a more accurate takeaway from complex human-to-machine interactions.

I'm still not smashing SoundHound AI's "buy" button

So SoundHound AI is going places, and the business wins are starting to trigger significant revenue streams. That's new, and a game-changing step forward.

The stock still isn't cheap, trading at 51 times trailing sales with deeply negative profit margins. Furthermore, the company is still in a show-me stage of development. Maybe I'll kick myself later for not taking a more bullish stance with this stock right now, following the market-guided buys of Vanguard and others, but I'm pretty satisfied with the shares already in my portfolio.

Call it a "strong hold," I suppose. SoundHound AI is a comfortable long-term growth bet at this point, but not my favorite tech stock to buy in September 2025. In my eyes, the risk-and-reward balance isn't quite there yet.

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Anders Bylund has positions in SoundHound AI. The Motley Fool has positions in and recommends Tencent and Vanguard Total Stock Market ETF. The Motley Fool has a disclosure policy.