SoundHound AI (SOUN 4.11%) has captured the attention of artificial intelligence (AI) investors over the past few years because of the company's impressive conversational AI technology. The company has attracted an impressive customer list, including Chipotle and Hyundai, and an initial investment from Nvidia gave the company even more credibility in a sea of other AI stocks.
But recently, SoundHound stock has lost its luster. Nvidia sold its stake, and some investors grew concerned about the company's lack of profits, resulting in SoundHound's share price tumbling 43% over the past year. While the recent pullback may seem like a good buying opportunity, here's why investors shouldn't bet on SoundHound AI stock just yet.
Image source: Getty Images.
1. The company is unprofitable and expenses are rising
SoundHound recently reported its third-quarter results, with the company's revenue rising 68% to $42 million. That was more than the $40 million in revenue that Wall Street had estimated for the quarter, which gave investors some assurance the company was on the right track.
But one glaring problem is that SoundHound is still significantly unprofitable and costs are rising. The company reported a non-GAAP loss per share of $0.03 in the quarter, a slight improvement from its loss of $0.04 in the year-ago quarter.
However, even with this improvement, it's important to note that SoundHound's expenses are still rising. If we look at SoundHound's third-quarter non-GAAP expenses, which don't include a $66 million non-cash change in liabilities related to acquisitions, there are still considerable rising costs:
|
Spending Category |
Q3 2024 |
Q3 2025 |
Year-Over-Year Increase |
|---|---|---|---|
|
Research and development |
$19.5 million |
$22.8 million |
17% |
|
Sales and marketing |
$8.4 million |
$16.4 million |
95% |
|
General and administrative |
$17 million |
$24.3 million |
43% |
Source: SoundHound AI.
With SoundHound's costs rising so quickly, the company's increasing sales become less impressive, and it's clear the company likely isn't close to being profitable any time soon.
2. It's burning through cash
SoundHound AI is in a highly competitive market, and it's burning through cash to be there. In the first nine months of 2025, SoundHound's free cash flow was negative $78.7 million, which was worse than its negative free cash flow of $76.3 million in the first nine months of 2024.
It's concerning that, despite SoundHound's rising sales, the company's free cash flow is moving in the wrong direction. The company is failing to achieve operational leverage, as each new dollar it earns costs roughly the same as it did before.
It's unclear how long SoundHound will be able to sustain its massive spending to grow the company before it either has to cut back on spending, substantially increase revenue, or raise additional capital. While SoundHound has $269 million in cash and no debt, continued aggressive spending will eventually hurt the company if its losses don't narrow.
NASDAQ: SOUN
Key Data Points
3. SoundHound AI's stock is too expensive
If all of that weren't enough of a red flag for buying SoundHound AI, its stock is also overpriced. The company's shares have a price-to-sales ratio of about 30 right now, which is very expensive considering the average P/S ratio in the technology sector is about 9.
An overpriced AI stock isn't exactly a rarity these days, but plenty of other technology companies are betting big on AI right now and are also profitable. I think it's challenging to justify SoundHound AI's overpriced shares, given its continued spending, increasing expenses, and the company's prolonged path to profitability.
