This Popular Artificial Intelligence (AI) Stock Is Down 19% in 2026. Here's What Could Happen Next.

SoundHound AI (NASDAQ: SOUN) is a leading developer of conversational artificial intelligence (AI) software, and its customers include some of the world's biggest brands across a range of industries, from automotive manufacturing to healthcare to hospitality.

The company's revenue doubled in 2025, and management is forecasting another big year in 2026. However, you wouldn't know it by looking at the company's stock price -- it plunged by 49% in 2025, and it's already down by a further 19% this year. Simply put, its valuation reached an unsustainable level, and the market is now trying to determine a more appropriate price.

SoundHound stock still isn't cheap despite the sharp sell-off, but there might be an opportunity for investors as 2026 progresses. Here's what could happen next.

Image source: Getty Images.

Conversational AI is a game changer

Conversational AI is transforming the way many businesses operate. In the restaurant industry, chains like Jersey Mike's, Panda Express, and IHOP are using SoundHound to autonomously take customer orders in the drive-thru, over the phone, and in store. Some restaurants are also using the company's Employee Assist technology, which allows employees to call upon a voice-activated AI assistant whenever they need help preparing menu items, understanding store policies, and more.

Automotive manufacturers are using SoundHound's Voice AI technology to create in-car assistants that can provide information on almost any subject on command. The manufacturer can base their assistant on SoundHound's proprietary large language models (LLMs), or they can use third-party models from developers like OpenAI and Anthropic. Plus, each assistant can be customized with different personalities to suit specific brands, giving drivers a unique experience.

SoundHound is investing heavily to expand its portfolio of conversational AI solutions as it aims to serve businesses in a wider variety of industries. The strategy is paying off, with over 100 new customer wins in the fourth quarter of 2025 alone.

Rapid revenue growth with an improving bottom line

SoundHound generated a record $168.9 million in revenue during 2025, which was a 99% increase from the prior year. The company expects to deliver between $225 million and $260 million in revenue during 2026, representing a further 54% growth at the high end of the range.

The company's bottom line also improved during 2025, which is important because its mounting losses have been a concern for investors. The company still lost $14 million on a generally accepted accounting principles (GAAP) basis, but that was far less than the $351.1 million it lost in 2024. The reduction was partly attributable to a favorable one-off change in the fair value of SoundHound's acquisition-related liabilities, worth $163.1 million.

However, even after excluding one-off and noncash expenses, SoundHound's 2025 adjusted net loss still narrowed by 22% year over year, coming in at $53.9 million.

The company ended 2025 with no debt and $248 million in cash, so it can afford to lose money at the current pace for a few more years. But investors will favor continued progress at the bottom line, because otherwise a future capital raise might be in the cards, which will dilute existing shareholders and dent their potential returns.

SoundHound stock still isn't cheap

Despite the sharp decline in SoundHound stock since the start of last year, it's still trading at a hefty price-to-sales (P/S) ratio of 23.2. That makes it even more expensive than Nvidia, which is one of the world's highest-quality companies, with soaring revenue, ballooning profits, a rock-solid balance sheet, and a track record of success spanning decades.

SOUN PS Ratio data by YCharts

Nvidia is a hardware company that supplies the semiconductor industry's best data center chips for processing AI workloads, so its business isn't really comparable to SoundHound's software business. However, I certainly don't think SoundHound deserves a premium valuation since it's so early in the commercialization process -- like most businesses, it will likely hit several speed bumps on the way to achieving scale. I think investors have realized this, hence the sharp decline in its stock.

With that said, if we assume SoundHound's revenue will come in at around $242.5 million during 2026 (the midpoint of management's forecast range), then its stock is trading at a forward P/S ratio of 14.9. That could pave the way for some upside later this year, likely after the company posts its first- and second-quarter results. By that stage, investors should know whether management's revenue estimate is realistic.

Therefore, the downtrend in SoundHound stock might continue in the short term, but it could turn into a buying opportunity later on for investors.

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and SoundHound AI. The Motley Fool has a disclosure policy.