It's a good question -- is it too late to buy shares of SoundHound (SOUN +2.03%) after it surged 50% over the past year? Well, I'll suggest that it very well may be -- because despite that 50% gain over the past 12 months, the stock is actually down 40% year to date. (These figures are as of Nov. 26.)
Buying the stock is not a no-brainer move, though, because there are reasons to buy and reasons to refrain. The company began as a music-recognition specialist before pivoting a bit into the voice artificial intelligence (AI) market. Its technology is now found in cars, giving drivers the ability to use voice commands, and in restaurants, where it helps ensure customers' orders are more accurate, among other benefits.
NASDAQ: SOUN
Key Data Points
Here's why you might buy into SoundHound: It's growing rapidly. Its third quarter featured record revenue of $42 million, up 68% year over year, and management increased its projections.
Here's why you might hold off: Its valuation is quite steep for a company of its size (remember, its quarterly revenue was $42 million, not billion). Its price-to-sales ratio, recently 32, is down significantly from 90 in 2024, but both those numbers are quite steep. (I'll play devil's advocate here, though, to point out that its recent market cap was $5 billion, and if you expect the company to be worth much more than that in the future, then the valuation is actually OK.)
Image source: Getty Images.
Meanwhile, the company has been posting losses instead of gains in recent years, it's burning through cash, and there's significant shareholder dilution as its share count has increased.
My take is that while SoundHound has great potential, it's currently a risky investment. So, either wait for a much lower price or improved profitability, or perhaps start with a small position in the company.
