'Nvidia sells, SoundHound dumps'—Nvidia’s exit left SoundHound investors holding the bag

SoundHound AI (SOUN) is considered one of the most promising voice AI platforms, so why did Nvidia dump all of its SOUN shares at the end of the fourth quarter?

A recent look at the company’s financial statements may provide some clues.

SoundHound’s revenues soared in the final quarter of the year, climbing 85% to $84.7 million. The problem? The company is hemorrhaging money.

It reported a net loss of $351.1 million during the quarter, but that’s not the worst part. The company’s net loss increased by 283% compared to a year earlier.

A closer look at SoundHoud’s revenue figures also paints a troubling picture: much of its growth comes from acquisitions of other AI firms, most notably Amelia, Allset, and SYNQ3.

While the acquisitions expanded SoundHound’s reach across various AI niches, they haven’t been a substitute for organic business growth. In fact, they’ve created more headaches in the short term (but more on that below).

Investors are also bracing for massive shareholder dilution after SoundHound indicated in January that it was planning to raise up to $500 million through a “mixed shelf offering.” The filing essentially gives the company carte blanche to raise cash by issuing common stock, preferred stock, or debt.

All said, it looks like Nvidia may have jumped off a sinking ship.

Nvidia sells, SoundHound dumps

It wasn’t until mid-February that investors learned that SoundHound was no longer part of Nvidia’s stock portfolio.

Regulatory filings showed that Nvidia dumped 1.7 million SOUN shares on Dec. 31, netting the company $33.7 million.

Since then, SOUN stock has been down more than 50%. Had it not sold, Nvidia’s SoundHound holdings would have been worth less than $16 million at current prices.

Although SoundHound has been caught up in a broad macro-driven sell-off, its losses have been exacerbated by mispriced expectations about where the company is headed.

In 2024, the company’s stock traded at more than 100 times sales, which is almost impossible to justify given its underlying business. By March 26, the stock’s price-to-sales ratio had crashed below 40, according to industry data.

SOUN stock has also been negatively impacted by complex accounting. Remember all those fancy AI companies SoundHound added to its portfolio? Turns out they gave its accounting department a headache.

In early March, SoundHound notified regulators it would delay filing its Form 10-K due to fuzzy accounting tied to its acquisitions. Form 10-K is an annual financial report submitted to the U.S. Securities and Exchange Commission.

SOUN stock crashed more than 10% on the news.

“As previously disclosed, the Company has identified material weaknesses in its internal control over financial reporting. These material weaknesses continue to exist as of December 31, 2024,” SoundHound said in its disclosure.