This year has been a nonstop thrill ride for SoundHound AI (SOUN 4.46%) investors. After kicking off 2024 with a 23% loss by Feb. 5, the artificial intelligence (AI) and voice recognition specialist reversed course, notching 323% gains by March 15. It then turned south, losing half its value as of market close on Wednesday. After such a whiplash-inducing ride, the stock is still up 112% since the year began.

One Wall Street analyst views the decline as a positive thing.

Lower risk, but still risky

Cantor Fitzgerald analyst Brett Knoblauch upgraded SoundHound AI stock to neutral (hold) from underweight (sell) while maintaining its price target of $4.90. This represents an upside of roughly 10% compared to the stock's closing price on Wednesday.

The analyst had previously issued a rare double downgrade on SoundHound AI, primarily the result of its frothy valuation of 40 times sales. However, the analyst also cited a host of other concerns, suggesting that SoundHound AI is a risky stock. The valuation has now contracted from 45 times sales to 22 times sales, with Knoblauch suggesting the downside risk and upside promise are now equal.

I still believe investors should exercise care. The same risks originally highlighted by the analyst are still in play, including its opaque operating model, insufficient capital spending, and potential customer losses.

There are other issues. In its 2023 annual report, SoundHound AI admitted that it identified "material weaknesses in its internal control over financial reporting," which caused the company to restate a number of its financial statements. This is a serious red flag that can attract the attention of regulators.

I have also raised concerns in the past about how SoundHound accounts for its backlog. After management "updated" this metric, the backlog now includes "committed customer contracts" and "potential revenue achievable," which rely heavily on management assumptions.

Even after a significant retracement, SoundHound AI is selling for 22 times sales but still hasn't generated a profit. Investors should exercise care with this volatile high-flyer.