Specific patterns often repeat in the stock market. For example, small, unprofitable companies that surge based on hype tend to give back their gains quickly. SoundHound AI (SOUN 4.96%) is a great example. Shares of the audio-focused AI start-up boomed after tech giant Nvidia revealed that it had taken a small position in it. But since then, they've fallen back down to earth.
At the time of this writing, SoundHound shares are now down by a whopping 61% from the all-time high of $24.98 they reached late last year. Should investors see this dip as a buying opportunity or stay far away from the stock? And what might the next three years bring for the company?
NASDAQ: SOUN
Key Data Points
Why did Nvidia drop SoundHound?
Nvidia's involvement with SoundHound started in 2017 when the chipmaker participated in a $75 million funding round alongside other tech companies like Samsung. In February 2024, an SEC filing revealed that Nvidia held around 1.73 million SoundHound shares, which is 0.5% of the total outstanding.
However, by February 2025, another SEC filing revealed that Nvidia had dropped its entire position in SoundHound, which may have deflated market optimism in the company. Nvidia's exit suggests that the chipmaker didn't have any long-term plans for SoundHound (such as an acquisition) and may not see significant upside potential in the equity relative to other places where it could be keeping its money.
That said, investors shouldn't look too deeply into the situation. As an AI chip manufacturer, Nvidia benefits from keeping the AI software industry healthy and vibrant. Its investment in SoundHound may have been a way to support companies pioneering new use cases for its hardware.
Focus on the fundamentals
Nvidia's investment in SoundHound may have distracted investors from focusing on the company's actual fundamentals. They are a mixed bag. Fourth-quarter revenue grew by 101% year over year to $34.5 million. But while this sounds impressive, the devil is in the details.
SoundHound closed several significant acquisitions in 2024. These include enterprise AI software company Amelia (purchased for $80 million) and online food platform Allset. These new businesses added significant non-organic growth that won't be replicated in future quarters. Furthermore, they have dramatically expanded the company's cash burn.
The fourth quarter's gross margin fell from 77.2% to 39.9%, while operating losses ballooned by 1,974% from $12.4 million to $257 million.
Image source: Getty Images.
Over the long term, SoundHound wants to turn all these disparate AI-related businesses into a coherent voice AI ecosystem. For example, the Allset acquisition likely plays a role in its recent development of an in-vehicle voice assistant designed to allow users to find restaurants and order takeout directly from their car's infotainment system without needing a third-party app like Uber Eats or DoorDash.
The company has also secured a slew of partnerships in the restaurant industry, where it claims to be working with 30% of the top quick-service brands, helping automate their drive-thru systems in select locations. However, it is unclear if these companies are experimenting with SoundHound's software or if they really plan widespread implementation.
Where will SoundHound Stock be in three years?
SoundHound wants to synergize voice recognition with generative AI, which holds the potential to create significant value. But right now, clients are still experimenting with the technology and probably aren't ready to fully embrace it for restaurant drive-thrus and other real-world use cases.
While voice AI will become more mainstream over the next three years, SoundHound's stock will likely still face significant downside because of the company's massive operational losses and risky-acquisition-reliant growth strategy. Investors should stay far away until losses stabilize and the business establishes a pathway to profitability.
