SoundHound stock is getting punished for being early, not wrong
Shares of SoundHound AI (SOUN) have sold off sharply over the past month, caught in a broader unwind of the AI hype trade and a rotation away from unprofitable growth stocks.
A recent analyst note from DA Davidson suggests the decline may be more about timing and expectations than the company’s long-term opportunity.
And that the selloff could be creating upside for patient investors.
After closing near $21 in mid-October, SoundHound shares slid more than 55% into the new year, briefly dipping below $10.
The stock is down roughly 15% over the past month and about 28% over the past year, reflecting a sharp reset in sentiment around smaller AI companies.
Despite the drawdown, DA Davidson analyst Gil Luria reiterated a Buy rating and issued a $14 price target, implying roughly 30% upside from current levels.
Luria said the recent weakness may offer an attractive entry point, provided investors are willing to accept a longer path to revenue scale.
His view follows a CES analyst event attended by SoundHound’s CEO and CFO, which included a live demonstration of Amelia 7.3, the company’s latest conversational AI platform designed to support complex enterprise voice interactions.
Coming out of the event, Luria said he was encouraged by SoundHound’s technology differentiation, a key issue for investors who have questioned whether voice AI is becoming commoditized amid growing competition from larger players.
At the same time, the analyst acknowledged that expectations had moved too far ahead of reality in the near term.
“We got ahead of ourselves with regards to the near-term revenue ramp,” Luria wrote. “We are slightly reducing our estimates near term but continue to see a healthy growth profile for SOUN over the long run.”
Evaluating SoundHound’s business
While early investors may have expected too much, too quickly, SoundHound’s business continues to expand.
In the third quarter, the company reported revenue of $42 million, representing 68% year-over-year growth and coming in well ahead of the consensus estimate tracked by Zacks.
SoundHound also reported a net loss of $109.3 million for the quarter, though this figure was inflated by a $66 million non-cash accounting charge.
The charge reflects SoundHound updating the estimated amount it may have to pay in the future for a past acquisition if that business continues to perform well.
Excluding that item, losses were materially lower, underscoring the gap between reported results and underlying operating trends.
SoundHound reported a $269 million cash pile at the end of the quarter with no debt.