Shares of SoundHound AI (SOUN 3.66%) slipped 50% in 2025, according to data from S&P Global Market Intelligence. A developer of voice-based artificial intelligence (AI) tools for businesses, the company is winning tons of contracts and driving strong revenue growth. However, the business is burning a lot of cash and trades at a premium valuation.
Here's why SoundHound AI stock fell in 2025, and whether you should scoop up some shares at these discounted prices.
NASDAQ: SOUN
Key Data Points
AI tailwinds and a history of losing money
SoundHound AI has adeptly expanded its voice-based AI technology during the past few years of the AI revolution. It offers products to support customer service, restaurant drive-thrus, car voice systems, and more, winning numerous contracts worldwide across various industries. Its focus on commercial use cases has helped it win contracts when competing with big technology companies.
Revenue is exploding higher. Sales increased 68% year-over-year to $42 million last quarter. Since going public in 2022, revenue has grown cumulatively by over 1,000%.
So why is the stock down? The primary reason is the company's inability to generate a profit while heavily diluting its shareholders. SoundHound AI's free cash flow was negative $111 million over the last twelve months, a figure that has only gotten worse since it became public. On top of this cash drain, the company has a large stock-based compensation program that is diluting shareholders but is not included in cash flow. Shares outstanding are up over 100% since the company went public, which will be a huge drag on long-term returns.
Image source: Getty Images.
Should you buy SoundHound AI stock?
Even though SoundHound AI's stock collapsed last year, it still trades at a premium price relative to its trailing revenue. With a market capitalization of $5 billion, the stock has a price-to-sales ratio (P/S) of 32, which is more than 10 times the average of the S&P 500 Index.
A bull may argue that SoundHound AI is growing quickly, which will bring down this P/S ratio. Investors need to remember, though, that this company is failing to generate positive free cash flow and is heavily diluting shareholders with stock-based compensation. Combine this with a high starting valuation, and SoundHound AI stock does not look attractive even after falling 50% in 2025.
