SoundHound AI (SOUN +1.29%) stock saw a big pullback in Thursday's trading. The audio technology company's share price closed out the daily session down 3.2%, according to data from S&P Global Market Intelligence.
NASDAQ: SOUN
Key Data Points
SoundHound stock actually opened today's trading session with strong bullish momentum, and it had been up as much as 18.5% earlier in the day's trading. But the stock pulled back following comments made by analysts from Navellier, and it moved lower following news that inflation in the U.S. had come in higher than anticipated.
Speaking on a podcast today, Navellier's analysts raised concerns that SoundHound was a "pump and dump" stock. The firm's team suggested that the SoundHound's valuation had become unreasonably stretched and highlighted the fact that the average Wall Street analyst target now called for the business to post a per-share loss of $0.09 per share in this year's first quarter -- up from an estimated per-share loss of $0.07 roughly two months ago.
Growth investors also got some bad news on the inflation front today. The producer price index (PPI) showed a 0.6% monthly increase in February. Meanwhile, the average estimate had called for the PPI to rise 0.3% on a monthly basis. At the same time, overall retail sales rose roughly 0.6% in the month -- falling short of economists' target for growth of 0.7%.
The combination of bearish coverage from Navellier's analysts and unfavorable macroeconomic data sent SoundHound stock tumbling today, and shares had been down as much as 12.7% in Thursday's trading. Should investors be buying the stock on pullbacks?
SoundHound AI stock remains a high-risk, high-reward play
Today's dramatic swings for SoundHound's share price reflect the volatile nature of the stock right now. The audio-tech specialist has become a battleground stock. With shares up 295% year to date, the bulls have undoubtedly been winning the battle lately. But the massive run-up for the company's valuation has made SoundHound a much riskier bet, and even mildly negative news could trigger a surge of bearish momentum.
While SoundHound AI is growing revenue at a rapid pace, the company's lack of profitability and highly growth-dependent valuation make it one of the riskier big-name AI stocks right now.
SOUN Market Cap data by YCharts
Valued at around $2.6 billion, SoundHound is trading at roughly 37 times this year's expected sales. Investors are hoping that the company's relatively small size and strong sales momentum will allow the stock to continue posting explosive gains from current levels.
While it's possible that the bulls will continue to feast, I think investors should generally take a cautious approach to the stock at today's prices. In addition to some very strong growth already being priced into the stock, SoundHound's current valuation still seems to suggest a favorable macroeconomic backdrop moving forward. Given the amount of speculation involved, the stock comes with substantial downside risk right now -- even if explosive potential is still on the table.
