Down 40%, Should You Buy SoundHound AI Right Now?

How times have changed for SoundHound AI (NASDAQ: SOUN). The stock had a mammoth run of 835% in 2024, just to falter throughout much of this year. SoundHound stock is down 40% on a year-to-date basis, despite increasing its revenue and developing the building blocks of a unique business that's already being embraced by some industries.

Is SoundHound stock just in a lull, or do the company's rapidly expanding losses signal a fundamental problem? Let's take a closer look.

Image source: Getty Images.

About SoundHound AI stock

SoundHound AI is a California-based company with a voice artificial intelligence (AI) platform that allows customers to develop customized conversational AI assistants. SoundHound's customers include Snap, Mastercard, Honda, and more.

It's in the restaurant industry that SoundHound is really making its mark. For instance, the platform is used by White Castle restaurants to help customers order food, and it partnered with Toast, a software-as-a-service company, to provide its voice AI technology to Toast's point-of-sale systems for restaurants. SoundHound is also working with Square, which is operated by Block, to integrate its platform with Square point-of-sale systems and automate phone ordering processes for restaurants, and it's working with companies like Olo and Oracle to create products that allow restaurants to accept voice orders over the phone, through a menu kiosk, or over a drive-thru speaker.

SoundHound's platform also works well with automotive companies, enabling drivers to connect to automotive voice assistants or respond to voice commands.

Other companies, such as Pandora and Snap, are using SoundHound's platform to allow users to make queries, caption photos, and issue commands.

SoundHound's third-quarter earnings report noted that there are plenty of new opportunities coming for the company, including a deal with an unnamed Chinese company to integrate SoundHound Chat AI into tens of millions of AI-enabled smart devices, deals with three top global financial services companies for additional enterprise services, and an agreement with a U.S.-based regional hospital to deploy its Amelia conversational AI platform.

"Enterprise AI adoption is booming globally, and SoundHound is strengthening its leading position with deployments in millions of endpoints across highly diversified industries and customers," CEO Keyvan Mohajer said. "We see enormous potential in the near and long-term horizon, and we're positioning our business to take full advantage."

Should you buy SoundHound stock on the dip?

SoundHound's revenue in the third quarter was $42 million, up 68% from a year ago. That's not a surprise considering how quickly SoundHound is bringing in new deals. However, as the company scales up, it's also incurring significant losses. The net loss for the quarter was $109.27 million, up 402% from its loss of $21.75 million in the third quarter of 2024. That resulted in an loss per share of $0.27, versus a loss of $0.06 per share in the same quarter a year ago.

Fortunately, the company has no debt. And with its cash position of $269 million as of the end of the quarter, it appears to be in sound financial shape.

And also, fortunately for investors, there's a lot of analyst enthusiasm for the stock. Of nine analysts who cover the stock on Yahoo! Finance, six have buy ratings and three recommend holding. None of them, notably, suggest selling at this point. Their consensus price target of nearly $17 suggests a possible increase of 46% in SOUN stock.

Is SoundHound a no-brainer buy at this point? I'm not willing to go that far. It's challenging to be a relatively new business trying to scale, and the AI space is highly competitive. I'm not convinced that SoundHound stock hasn't found a bottom yet.

For investors with a long-term horizon and who can accept some risk, SoundHound may be a suitable way to invest in AI. But I'll sit this one out, at least for now.

Patrick Sanders has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Block, Mastercard, Oracle, and Toast. The Motley Fool has a disclosure policy.