A good rule of thumb is to avoid hyped-up stocks that have rallied substantially without a corresponding improvement in fundamentals like profitability or cash flow. SoundHound AI (SOUN 3.59%) is an excellent example of this concept. Shares tanked around 46% in 2025, giving back most of the gains experienced during its rally in 2024.
As the AI boom gets long in the tooth, investors are no longer satisfied with companies that sell a story about how they plan to use the new technology; they want to see results. Let's dig deeper to see if SoundHound can deliver what the market wants in 2026 and beyond.
Why did SoundHound rally in 2024?
SoundHound stock became a household name in 2024 when a regulatory filing revealed that Nvidia owned 1.7 million shares in the voice and speech AI specialist. Many investors took the investment as a vote of confidence in SoundHound and a sign that there was something special about its technology. Perhaps more importantly, it opened up the possibility that Nvidia might consider totally acquiring SoundHound as a subsidiary or working with it through meaningful commercial partnerships.
To be fair, there does seem to be some limited cooperation between the two companies. In March 2024, SoundHound announced an on-chip voice AI in collaboration with Nvidia Drive, the company's hardware and software platform for autonomous vehicles. The product is unique because it is designed to host a fully functional large language model (LLM) on the chip itself instead of relying on remote cloud-based inference.
That said, this doesn't seem to be a formal partnership or joint venture. Nvidia is a big player in the AI industry; these types of small-scale collaborations are common and not necessarily game-changing. By late 2024, updated filings reveal that Nvidia sold its entire stake in SoundHound, triggering a slide that the stock still hasn't recovered from yet.
NASDAQ: SOUN
Key Data Points
What about the core business?
SoundHound's roller-coaster ride highlights the danger of investing in a company based on hype and positive news stories. While these events can look like a big deal in the short term, the stock price appreciation usually doesn't last unless it is backed up by improving fundamentals. SoundHound's third-quarter earnings paint a mixed picture.
While revenue jumped by an impressive 68% year over year to $42 million, investors shouldn't necessarily take this growth at face value. SoundHound has been on an acquisition binge over the last few years, rolling up companies such as food ordering company Allset and Enterprise AI company Amelia. These buyouts boost revenue growth in the short term, but they aren't necessarily organic. Overreliance on acquisitions can actually hurt a company's long-term performance by draining its cash and increasing its losses if the new businesses aren't profitable.
SoundHound's third-quarter operating loss ballooned by over 240% to an eye-popping $115.9 million. This is significantly bigger than revenue, and it's safe to say the company has no clear pathway to profitability, especially if it continues to drive growth through acquisitions.
Image source: Getty Images.
Is SoundHound stock a buy?
Despite the extremely weak fundamentals, SoundHound does offer some things for investors to get excited about today. For starters, voice- and speech-enabled AI is arguably the low-hanging fruit of the generative AI opportunity -- expect adoption to be rapid in areas like restaurants, customer service, and automotive assistants.
SoundHound is an early mover, which can help it secure market share and brand recognition. The company already boasts a slew of partnerships with mainstream companies like Krispy Kreme, Stellantis, and Mercedes.
All that being said, numbers often speak louder than words in the stock market. And investors may want to wait on the sidelines until SoundHound's losses begin to moderate and it demonstrates a convincing pathway to profitability. Shares should be avoided for now.
