SoundHound AI (SOUN 3.66%) is a fairly popular artificial intelligence (AI) stock for its size. It's about a $5 billion company by market cap, making it relatively small. However, these smaller companies have the capability to rapidly grow, which could result in explosive returns.
SoundHound hasn't had a great 2025, as its stock is down around 15% for the year. However, back in October, the shares were up around 40% for the year. This suggests some extreme volatility in SoundHound stock, which shouldn't be surprising considering its size and popularity.
So can it stage a comeback in 2026? Let's find out.
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SoundHound AI is pioneering important applications
SoundHound AI combines audio recognition technology and generative AI. This is an important application of AI, as it could be used to automate human-to-human interactions that aren't done in person. One of the biggest use cases for its technology so far has been in the restaurant business, as many restaurant operators are integrating its technology in drive-thru windows.
Another area where SoundHound's products could deliver significant value is any industry that has a substantial customer service wing, such as healthcare, insurance, and financial services. If SoundHound can replace the thousands of customer service agents these companies employ, its product will be incredibly useful.
We're already seeing signs of worldwide adoption of its products, as SoundHound announced that three of the top 10 global financial institutions bought additional services during Q3 and signed a contract with a French insurance company.
NASDAQ: SOUN
Key Data Points
While SoundHound is seeing success in multiple industries, the ultimate test will be whether the consumer accepts it. Up until this point in time, robotic customer service agents haven't been very helpful, as they are set up to follow a specific chain of action. The generative artificial intelligence-powered service agents should be able to offer more flexibility and have a more human-like aspect.
Still, customers will need to accept that they are no longer talking to a human counterpart on the other side of the phone. If they don't like this, SoundHound's clients could have everybody who calls asking for a human operator rather than the generative AI agent. SoundHound AI's product needs to be good enough that this doesn't happen, but it's a real concern.
However, with all of the money clients are spending with SoundHound AI, I'd guess that it could be a massive success if done properly.
SoundHound AI is rapidly growing
SoundHound's revenue rose 68% year over year to $42 million in the third quarter. While that's not a massive total, its growth rate is impressive. Management believes it can deliver 50% organic growth or greater for the "foreseeable" future, indicating strong growth ahead. We'll see how long it can sustain its growth, but if SoundHound AI continues to grow at a 50% or greater pace throughout 2026, I'd be surprised if the stock isn't a winner.
One item that could hamper its success is its high valuation. Despite having a banner year, SoundHound AI still trades at 34 times sales.
SOUN PS Ratio data by YCharts
Most software companies trade between 10 and 20 times sales, but those companies usually aren't growing at a 68% pace. I think this is a fairly reasonable valuation for SoundHound's stock, and if it continues to deliver strong growth, the valuation is reasonable at its current level.
One issue SoundHound investors have to watch out for is its deep unprofitability. In Q3, its operating loss totaled $116 million on $42 million in revenue. That means it lost nearly triple what it brought in the door. That's concerning to a lot of investors, but I'm not as concerned with it because SoundHound is attempting to capture market share in an incredibly important market. If SoundHound's business is as successful as some think it can be, these losses will be worth it. But it still has a lot of work to do.
Overall, I think SoundHound AI could have a strong 2026, but its success is tied to its continued rapid growth rate and the market's appetite for risk. If either one of these falters, SoundHound's stock will have a poor 2026.
