SoundHound AI (SOUN +3.28%) is a specialist in conversational artificial intelligence (AI) software, which understands voice prompts and responds in kind. Its customers include some of the world's biggest brands, and it even attracted an investment from Nvidia (NVDA +0.19%).
Nvidia supplies the world's most powerful data center chips for AI development, and booming sales have driven its market capitalization from $360 billion to $3.83 trillion over the last two and a half years alone. Therefore, it's no surprise SoundHound AI stock soared higher when Nvidia revealed it bought a position in early 2024, and shares went on to hit an all-time high of around $24 in late 2024.
But Nvidia stunned investors when it released its 13-F filing with the Securities and Exchange Commission (SEC) on Feb. 14 this year. Its updated list of investments showed that SoundHound AI was no longer in the portfolio, suggesting the chip giant sold its entire stake toward the end of 2024.
SoundHound stock has now lost 53% of its peak value, and it's struggling to regain momentum. Could the decline be a long-term buying opportunity, or is Nvidia's exit a sign to steer clear?
Image source: Getty Images.
SoundHound has an impressive list of customers
Popular AI chatbots like OpenAI's ChatGPT are incredibly powerful, but they aren't always accessible. For example, people might not have the capacity to open an app or manually enter prompts when they are working or even driving, but SoundHound's conversational AI software was designed for those very situations, and adoption is soaring among some of the world's biggest brands.
They include quick-service restaurant chains like Chipotle, Krispy Kreme, Papa John's, and Jersey Mike's. They use SoundHound products like Employee Assist, which workers can speak to whenever they need help with menu items, systems, and store policies. The chains also use SoundHound to take customers' orders autonomously in-store, over the phone, and in the drive-thru, which frees up staff to complete those orders more quickly.
Automotive giants like Hyundai, Honda, and Kia are integrating SoundHound into their new cars, where it can help drivers understand different features and even provide them with information on things like the weather or sports scores on command. SoundHound also launched a platform called Voice Commerce this year, which includes products like In-Car Ordering. Users can ask for restaurant recommendations while they are driving, place an order, and get directions to pick it up -- all powered by their voice.
SoundHound acquired another conversational AI specialist called Amelia last year, which is helping the company expand its product portfolio. The new Amelia 7.0 platform allows businesses to create custom conversational AI agents to handle queries from their customers and employees. These agents can be trained to answer questions on specific products or topics, and they can also be instructed to avoid sensitive areas like politics.
NASDAQ: SOUN
Key Data Points
SoundHound's revenue is soaring, but it's burning through cash
SoundHound's revenue came in at $29.1 million during the first quarter of 2025 (ended March 31), which represented eye-popping growth of 151% compared to the year-ago period. The strong result gave management the confidence to reaffirm its full-year guidance, which suggests the company could generate $167 million in revenue during 2025 (at the midpoint of the forecasted range). That would be an increase of 97% from its 2024 result.
SoundHound is also sitting on an enormous order backlog. Management is no longer updating investors on the official number, but Chief Financial Officer Nitesh Sharan said it has grown even further since the end of 2024, when it was a whopping $1.2 billion. The company expects to convert the backlog into revenue over the next six years, so it's a good indication that more top-line growth is on the horizon.
But SoundHound's bottom line remains a concern. The company actually generated a profit of $129.9 million during the first quarter on a GAAP (generally accepted accounting principles) basis, but only because of a one-off benefit of $176 million from one of its acquisitions. On a non-GAAP basis, which excludes one-off and non-cash expenses, SoundHound still lost $22.3 million, which was up 10% year over year.
The first-quarter loss followed a non-GAAP net loss of $69.1 million in 2024, and since the company only has $246 million in cash and equivalents on hand, it can't afford to keep burning money at the current pace. If it doesn't turn profitable soon, a capital raise might be required in the future, which would dilute existing shareholders and dent their potential returns.
Could valuation be the reason Nvidia dumped SoundHound stock?
Nvidia management never shares the reasons for any changes it makes to its investment portfolio, but SoundHound's sky-high valuation is definitely something investors should consider before buying the stock. It's trading at a price-to-sales (P/S) ratio of 39.3 as of this writing, which is a whopping 50% premium to Nvidia's P/S ratio of 26.1.
Data by YCharts.
Nvidia is a high-quality company. It has a track record of success that spans decades, and it generated $130.5 billion in total revenue during its last fiscal year alone, along with $72.9 billion in net income. Considering SoundHound's business is still at a very early stage and is losing significant amounts of money, its premium valuation is very hard to justify.
No matter what Nvidia's official reasons were for selling SoundHound stock, its sharp decline in the aftermath hasn't made it an attractive buy, so I think investors should steer clear for now.
