The mania for artificial intelligence (AI) stocks has cooled a bit, with some titles cooling more than others. Among the lower-temperature ones is SoundHound AI (SOUN -2.36%), which specializes in audio and speech recognition for a variety of applications.

SoundHound AI occupies an identifiable niche and, unlike other AI companies, has long experience on its side -- it was founded in 2005 (although it only came to the stock market in early 2022). Nevertheless, it operates in a high-cost environment, and its revenue has been slowing. So is this stock a bargain in the relatively expensive AI sphere at the moment, or a value trap best avoided?

Thank you for the music

SoundHound AI began life as a developer of music recognition software. If the company is familiar to the broader public at all, it's likely for its near-namesake SoundHound mobile app. This is a neat little piece of software that can identify music through a device's microphone.

That proto-AI tech has been leveraged into a business that covers a range of AI sound functionalities. Smartly, the company has decided to concentrate on two high-potential (but very different) segments. These are the auto industry, currently hunting for whiz-bang assisted driving systems, and the restaurant business, which can be well served by AI systems that process voice reservations and food orders.

To its credit, the company has managed to secure a number of "strategic partners" -- it doesn't necessarily call them "customers" -- that use its technology.

In the auto sphere, there's Mercedes-Benz, Hyundai, Stellantis, Honda, and Kia. Restaurant associates include burger chain White Castle. Fellow techies that bring on SoundHound AI for an assist include music streamer Pandora and social media mainstay Snapchat.

While that's a glittering lineup, some of those entities surely aren't significant revenue generators.

In its 2022 annual report, SoundHound AI divulged that its top three clients (who were unidentified) comprised just over two-thirds of its revenue. That situation isn't shifting much, as in the company's latest 10-Q quarterly earnings filing, it wrote that "there have been no material changes" to the risk factors it disclosed in the annual report.

Artificial intelligence, but real losses

SoundHound AI isn't a new company, but its drive toward AI voice and sound dominance is relatively recent. As such, it has the profile of a classic young tech company, with habitual double-digit revenue growth. On the downside, it also fits that mold with high costs that have plunged it deeply and consistently into steep net losses.

Unfortunately for SoundHound AI, it's lost some believers because that all-important revenue growth is slowing. For its second quarter, the top line expanded by 42% (to almost $8.8 million). Not bad, huh? But that represented the third consecutive sequential decline, as in the previous quarter, the figure was 56%. And in the two quarters before that, it was a respective 84% and 78%.

The company remains resolutely loss-making on the bottom line, although to give it some credit, those shortfalls have narrowed (to just shy of $22 million last quarter, against the more than $26 million and nearly $31 million deficits of the two preceding frames). A set of layoffs earlier this year, in which almost 50% of its workers were let go, helped rein in costs.

Here comes the AI Era

Yet tech companies frequently look dicey in their initial stages, and that goes double when they're concentrating on a technology that's still relatively embryonic. SoundHound AI has a very appealing niche and the experience to capitalize on it. The "strategic partners" it proudly lists might not also be clients, but it's impressive that they trust the company's wares enough to implement them in some way.

The stock is cheap on a per-share price basis, if not necessarily on its valuations. AI, though, is loaded with potential, and this company seems to be doing a fine job establishing itself as a player in the field despite its struggles. I think it's well worth considering as an investment, although since we're at the dawn of this world-changing technology, any company concentrating on it carries a high degree of risk.