What if I told you that there is an artificial intelligence (AI) stock that outperformed both Nvidia and Palantir Technologies last year?
That's right: In 2024, shares of SoundHound AI (SOUN 1.38%) rose by 836%, handily outperforming some of the biggest darlings of the AI narrative.
This year has been a different story, however. Through the first half of the year, SoundHound AI stock plummeted by 46%.
Let's break down what piqued investors' interest in SoundHound AI to begin with. From there, I'll detail some of the factors that inspired investors to run for the hills during the first six months of the year.
While SoundHound AI may look like a relic of the past, smart investors understand the company is positioned to capitalize on two emerging themes within the broader AI realm.
Is now a good time to invest in the SoundHound AI sell-off? Read on to find out.
What fueled SoundHound's rise to begin with?
SoundHound AI burst onto the scene after securities filings revealed that Nvidia held a small equity position in the company. The mere affiliation with Nvidia -- AI's biggest darling so far -- was enough to get investors creating all sorts of narratives about how the two companies could be working together.
SoundHound AI operates in a unique and rather under-the-radar pocket of the AI realm. Through the power of natural language processing (NLP), SoundHound has built voice-powered AI assistants, not unlike Amazon's Alexa or Apple's Siri, that are used across many different industries.
Unfortunately for those who invested in SoundHound AI at its peak late last year, the stock suffered an intense sell-off throughout the first half of the year. Somewhat ironically, a key factor behind the nosedive was Nvidia. New regulatory filings revealed that the chip king had exited its position in SoundHound AI, likely inspiring widespread skepticism and a bearish sentiment around the AI voice developer.
Image source: Getty Images.
What could be in store for SoundHound AI during the second half of the year?
One of the biggest use cases for SoundHound AI's voice assistants is in the automotive industry. The company has partnered with a number of leading auto manufacturers, including Stellantis, Hyundai, Honda, and Lucid.
The value add here is that voice assistants can be integrated into infotainment and navigation systems inside vehicles, offering drivers a new level of convenience. According to a study commissioned by SoundHound AI, these systems represent a $35 billion opportunity for the automotive industry.
I think autonomous driving could soon become a more mainstream AI use case. SoundHound AI may have a lucrative opportunity to expand its existing footprint in the automotive industry by becoming a key partner in developing smart operating systems for vehicles.
Alphabet's self-driving taxi fleet, Waymo, is currently available in five major metropolitan cities and completes more than 250,000 paid rides per week. Moreover, Waymo's partnership with Uber helps deepen the strategic value autonomous driving presents for major industries such as ride-hailing and delivery. Lastly, Tesla finally joined the party following the launch of its Robotaxi service in Austin, Texas last month.
As the autonomous vehicle landscape transitions from a period of research and development to the early phases of monetization and commercial scale, SoundHound AI looks uniquely poised to take advantage of the opportunity.
Is SoundHound AI stock a buy right now?
Although SoundHound AI's share price has plummeted, the company's valuation is still stretched. Per the chart below, SoundHound AI boasts a price-to-sales (P/S) multiple of 42. For context, that's about where leading internet stocks peaked during the dot-com bubble of the late 1990s.
SOUN PS Ratio data by YCharts
I bring these dynamics up to stress that even though SoundHound AI stock might look "cheap," the underlying valuation suggests that shares are still hovering around bubble levels -- and that's even after a near-50% decline in the stock price.
While I remain curious about SoundHound's ability to benefit from the rise of autonomous driving and the integration of AI-powered voice software, I think the stock fits squarely into the speculative category.
Although shares could rebound during the second half of the year, this will likely be caused more by more narrative-driven buying than by concrete opportunities. With that said, I see SoundHound AI as more of a trade and less so a long-term "buy-and-hold" investment opportunity at this time.
