SoundHound AI Stock Sinks 8% as Revenue Misses Wall Street's Estimate. Is SOUN Stock a Buy?

SoundHound AI (NASDAQ: SOUN) stock declined 7.8% on Friday following the conversational artificial intelligence (AI) technology provider's release of its first-quarter 2025 report on the prior afternoon. The drop is largely attributable to the quarter's revenue falling short of Wall Street's expectations. The bottom-line result was in line with the analyst consensus estimate.

Image source: SoundHound AI.

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SoundHound AI's key numbers

Investors should focus on the adjusted numbers, which exclude one-time items. Q1 2025 GAAP numbers include an accounting-only (noncash) gain related to acquisitions. Data source: SoundHound AI. GAAP = generally accepted accounting principles.

Acquisitions over the last year have helped revenue growth year over year, though we do not know to what degree. In other words, we don't know the organic revenue growth rate. On the positive side, these acquisitions have enabled the company to better diversify its customer base on both individual and industry bases. No single customer accounted for more than 10% of revenue in the quarter.

Investors should focus on the adjusted numbers, which exclude one-time items. Wall Street was looking for an adjusted loss of $0.06 per share on revenue of $30.4 million, so SoundHound met the bottom-line expectation but missed the top-line one.

SoundHound used $19.2 million in cash to run its operation, slightly better than its operating cash flow of negative $21.9 million in the year-ago period. Free cash flow was negative $19.3 million, compared with negative $25.7 million in the year-ago period. The company ended the quarter with cash and cash equivalents of $246 million and no long-term debt. At the current cash burn rate, SoundHound's cash will last about 12.7 quarters, or just over three years.

What the CEO had to say

CEO Keyvan Mohajer's statement in the earnings release:

SoundHound continues to extend its reach and create new possibilities for real world AI applications. The release of our complete AI agent platform delivers full, voice-enabled Agentic AI for customers across all industries. At the same time, our bold growth initiatives are paying dividends, and we're realizing significant cross-sell and upsell opportunities following our acquisitions.

SoundHound AI's 2025 guidance

On the earnings call, CFO Nitesh Sharan reaffirmed the company's prior guidance as follows:

• For full-year 2025, revenue is expected to range from $157 million to $177 million. This would equate to annual growth of 85% to 90%. Annual growth will be helped considerably by acquisitions made in the last year, particularly the $80 million Amelia acquisition.
• By year-end 2025, the company expects to achieve positive adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization).

SoundHound is worth watching, but the stock is not a buy

SoundHound AI -- the company -- is worth watching for the simple reason that the voice artificial intelligence (AI) market is poised to be massive. That said, SoundHound AI -- the stock -- has been much too hyped by the financial press and on social media over the last year-plus, in my view. It's not the company's fault, however, that its stock price got ahead of itself due to all the hype.

Sure, the company has potential -- a lot. But I maintain a healthy skepticism about its ability to be a long-term winner in the AI-powered voice tech space. (Unlike unhealthy skepticism, healthy skepticism has been said to be the basis for critical thinking and involves remaining open-minded.) Indeed, I remain open-minded, especially because it's relatively early innings in the conversational AI space.

Before I get into my concerns, a notable positive is that SoundHound's cash will last about 12.7 quarters, or just over three years, at its current cash burn rate.

What are my main concerns?

The first has to do with the company growing through a large number of acquisitions. Growth strategies that rely significantly on acquisitions are challenging to pull off well, as they involve integrating often-diverse corporate cultures.

Moreover -- and this is the main reason I do not like these growth strategies -- they can obscure a company's lack of robust organic (internal) revenue growth and issues with its own core products and tech. It's simply not possible for investors to accurately gauge such a company's performance unless it regularly reveals its organic growth rates (growth excluding that from contributions made by significant acquisitions made within the past year).

The second main issue involves profitability -- or, more accurately, the lack thereof. Granted, it's not unusual for newly public tech companies to prioritize revenue growth over achieving profitability. But the lack of progress toward profitability is just one concern. My other concern is how things have played out relative to profitability guidance.

The company initially guided for positive adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) in the fourth quarter of 2023. Five quarters later, its adjusted EBITDA is negative $22.2 million. When that milestone wasn't hit, it guided for achieving positive EBITDA for full-year 2025.

Currently, guidance includes achieving positive adjusted EBITDA by the end of the year (which likely means in the fourth quarter). One question that comes to mind is whether the current profitability outlook is possible now only because of the $80 million Amelia acquisition made in August 2024.

Lastly, competition in conversational AI applications is already tough, as the players in the auto end-market, in particular, include big tech companies with tons of cash. And competition promises to heat up further. Whether SoundHound has enough competitive advantages to grow revenue at scale and generate solid profits remains to be seen.

Along with the big techs, investors should watch Cerence (NASDAQ: CRNC) in the voice AI space. In October 2019, this company spun off from Nuance Communications (which has since been acquired by Microsoft). Cerence has had execution issues, but with a high-profile CEO (former Intel CEO Brian Krzanich) installed last fall, the company's performance could improve.

Again, I'm remaining open-minded about SoundHound AI, and so should investors.

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Beth McKenna has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel and Microsoft. The Motley Fool recommends Cerence and recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short May 2025 $30 calls on Intel. The Motley Fool has a disclosure policy.