SoundHound AI (SOUN 0.81%) went through some wild swings after it went public by merging with a special purpose acquisition company (SPAC) on April 28, 2022. Its stock opened at $8.72, closed at a record high of $24.23 on Dec. 26, 2024, but now trades at about $12.
The developer of AI-powered speech and audio recognition tools initially impressed investors with its explosive revenue growth, but its luster faded as rising interest rates compressed its valuations. Nvidia (NVDA 0.65%), which owned a minor stake in SoundHound, even liquidated its entire stake earlier this year. So is this volatile AI stock still worth buying?
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How fast was SoundHound AI growing?
SoundHound's namesake app can identify songs with just a few seconds of recorded audio or a few hummed bars. However, most of its revenue and growth comes from Houndify, its developer-oriented platform for creating custom voice recognition services.
Houndify is a popular option for companies that want to develop their own voice-powered tools but don't want to share their data with a tech giant like Microsoft (MSFT 2.69%) or Alphabet's (GOOG +1.04%) (GOOGL +0.99%) Google. Its customers already include automakers like Stellantis, quick-serve restaurants like Chipotle, Chinese tech titans like Tencent, and credit card giants like Mastercard.
NASDAQ: SOUN
Key Data Points
After its public debut, SoundHound expanded its ecosystem by acquiring the AI restaurant services provider SYNQ3, the online food ordering platform Allset, the conversational AI company Amelia, and the customer service AI company Interactions. Those acquisitions boosted its exposure to the restaurant industry, which uses SoundHound's AI voice tools to accept orders, as well as the growing market for voice-enabled customer service chatbots.
From 2020 to 2024, SoundHound's revenue grew at a CAGR of 60% from $13 million to $85 million. However, its gross margin declined from 55% to 48.9%, while its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) decreased from negative $50 million to negative $62 million. While it continued to grow at an impressive rate, it didn't seem to have much pricing power as the costs of integrating its acquisitions squeezed its margins.
It also broadly missed its own pre-merger estimates. By 2024, it originally aimed to generate $255 million in revenue with a gross margin of 76.2% and a positive adjusted EBITDA of $6 million. It certainly isn't unusual for a SPAC-backed start-up to overpromise and underdeliver, but its growing dependence on acquisitions implies it's running out of room to expand organically.
What will happen to SoundHound over the next few years?
From 2024 to 2027, analysts expect SoundHound's revenue to grow at a CAGR of 51% to $290 million. They also expect its adjusted EBITDA to turn positive (at $17 million) in the final year. That growth should be driven by its diversification across the restaurant, automotive, retail, Internet of Things (IoT), and enterprise customer service markets. Its new "Vision AI" platform, which integrates computer vision tools into its voice AI services, should make its AI bots even more intelligent by allowing them to use visual and audio cues together. Those upgrades could make it more useful in various retail, industrial, and healthcare environments.
SoundHound will inevitably face stiff competition from tech giants like Microsoft and Google as it expands. Still, there could be plenty of room for these voice AI companies to grow without trampling each other. According to Precedence Research, the agentic AI market is expected to continue expanding at a CAGR of 43.8% from 2025 to 2034 as more companies replace their human workers with AI bots.
Is SoundHound AI's stock worth buying?
With an enterprise value of $4.9 billion, SoundHound isn't cheap at 22 times next year's sales. It has more than doubled its number of shares since its public debut, primarily through secondary offerings, dilutive acquisitions, and high stock-based compensation expenses, and it will remain unprofitable on a generally accepted accounting principles (GAAP) basis for the foreseeable future.
Those weaknesses make it a risky investment, but it's still worth nibbling on as a speculative play on the nascent agentic AI market. It has established an early mover's advantage, is still growing rapidly, and is expanding and evolving into a more diversified AI company.
