Down 54%, Should You Buy the Dip on SoundHound AI?

So far this year, shares of voice-recognition specialist SoundHound AI (NASDAQ: SOUN) have seen their value plummet by more than 50%. That's a frightening decline. But when you zoom out, the decline isn't as horrible as it seems. Over the past 12 months, shares are actually up by more than 100%.

The sharp correction in SoundHound's share price, therefore, may have simply been a temporary reset. Long-term, there's a lot to get excited about, especially when it comes to the company's expected sales growth this year and beyond.

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Sales growth is spiking higher and higher

Investors have a lot of questions surrounding the quality and viability of SoundHound's technology. In the voice artificial intelligence (AI) market -- a market that's expected to surpass $40 billion in value by 2032 -- SoundHound faces steep competition from big tech competitors, all of which have significantly higher research and development budgets than SoundHound.

Over the last 12 months, for instance, SoundHound has only spent around $70 million in research and development. Meta Platforms, for comparison, spends closer to $40 billion on research and development each year.

Image source: Getty Images.

Of course, big tech competitors like Meta don't allocate all of their innovation budgets to voice AI. SoundHound's singular focus has allowed it to acquire a portfolio of well-known customers including Applebee's, Qualcomm, and White Castle. These early clients have allowed it to pilot its technology in a wide range of industries, everything from fast food takeout to in-vehicle personal assistants.

Apparently, the market likes what it sees from SoundHound. Last year, sales forecasts called for annual growth of around 30%. For the upcoming year, growth projections have soared to nearly 100% year-over-year growth. So while SoundHound's stock did crash this year, sales expectations continue to climb. Could this be your chance to buy a high-growth AI stock on the cheap?

Possibly, but there's one more factor you need to consider.

SOUN PS Ratio data by YCharts

SoundHound AI stock is still expensive

Before the recent correction, SoundHound shares were trading at an astounding 100 times sales. Now, they trade at just 37 times sales. That's a steep discount to former levels, but undoubtedly still expensive, even for a growth stock. But what if you're willing to invest for the long term? Only then does the upfront premium start to make sense.

Let's say SoundHound eventually captures 10% of its total addressable market in 2032, estimated to be roughly $40 billion. That would give SoundHound a $4 billion sales base -- roughly the company's market capitalization today. That means SoundHound would trade at around 1 times 2032 sales, down from 37 times 2024 sales.

Of course, there are a lot of assumptions to this math. The voice AI market could be worth far more or less than estimates, and SoundHound's market share in 2032 is a tricky prediction to make. But one thing is for sure: If you want to invest in SoundHound stock today, you must justify the upfront premium with a long expected holding duration.

Should you invest $1,000 in SoundHound AI right now?

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Qualcomm. The Motley Fool has a disclosure policy.