SoundHound AI Stock Falls After Earnings: Should You Buy the Dip?

SoundHound AI (NASDAQ: SOUN) recently reported earnings, and while the numbers showed some solid growth on the top line, it wasn't enough to calm investor concerns about the voice artificial intelligence (AI) stock. Since releasing its results last week, the stock has declined by more than 12%.

What's wrong with this promising AI stock, and could it be a good buy on weakness, or are you better off steering clear of it?

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Revenue soared, but rising losses and worsening cash flow are problems investors can't ignore

SoundHound's revenue for the period ending March 31 totaled $44.2 billion, which was an impressive increase of 52% from the same period last year. But while its top line grew, the company's gross margin worsened from 36.5% to 31.1%, and it incurred a net loss of more than $25 million. A year ago, it turned in a profit of nearly $130 million, but that was largely due to a change in the fair value of contingent liabilities. When factoring out non-cash items, its adjusted loss was $26.6 million this past quarter versus a loss of $22.3 million a year ago.

The challenge for investors is in deciphering just how well the business is growing organically, with SoundHound acquiring multiple companies in recent years in an effort to bolster its growth prospects and customer base. This creates a cloudier picture for investors who are trying to assess how strong its numbers really are.

What's perhaps most concerning, however, is that its cash burn intensified during the quarter. SoundHound used up $26.3 million to fund its day-to-day operating activities in Q1, up from $19.2 million a year earlier.

SoundHound's stock is down more than 60% from its high

In October of last year, SoundHound's stock hit a high of more than $22. But as investors have grown concerned about rising valuations, the stock has plummeted and struggled to recover. The voice AI space is a highly competitive one, and simply acquiring more companies may not be a recipe for success for SoundHound. With its losses and cash burn remaining high, many investors likely still have doubts about whether the business is sustainable or whether it will need to rely on frequent stock offerings to fund its growth.

SoundHound's growth may have been impressive this past quarter, but without a significant improvement in both cash flow and earnings, I'd hold off on investing in the stock as it's still riddled with question marks and contains a lot of risk.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends SoundHound AI. The Motley Fool has a disclosure policy.