How Low Can SoundHound AI Stock Go?
SoundHound AI (NASDAQ: SOUN), a voice AI platform enabling businesses to deliver conversational AI experiences, has seen its stock rise 280% in the last twelve months. Why? It’s been a perfect storm of AI enthusiasm and momentum. First, there’s the broader AI voice technology wave that’s captured Wall Street’s imagination. Second, the company has been announcing partnerships and integrations that sound impressive – expanding its voice AI across automotive, restaurants, and customer service sectors. Third, the generative AI boom has investors betting that voice interfaces will be the next big thing.
But here’s the sobering truth – the company now trades at 55 times trailing revenues. Yes, voice AI seems to have tremendous upside potential, but SOUN has a relatively small revenue base of just $131 million. Of course, it’s burning cash – with a net income margin of -170% and an operating cash flow margin of -83%.
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The Fundamental Problem
We agree, SoundHound stock has the potential for solid future growth, and we’ve written about the upside potential ourselves. But did you ever think about the downside risks? Think about it logically. Markets won’t keep moving in one direction like we’ve been seeing lately, and SoundHound is still far away from profitability. There are many risks that could derail SoundHound’s stock growth engine, and when things go bad, such growth stocks don’t fall – they get hammered. This isn’t just an assumption.
Historical Precedent: The 2022 Massacre
Let’s look at 2022 when high inflation led to interest rate hikes and the markets dropped by 25% from their peak. Do you know how much SOUN stock dropped? It was a whopping 94% fall from $15 to $1. Think about that for a second – a 94% wipeout. That’s the difference between speculative stocks and real businesses with actual cash flows.
The Risk Factors That Could Crush SOUN
- Big Tech Competition: SoundHound faces formidable competitors with far deeper pockets – Amazon’s Alexa, Google’s Assistant, Apple’s Siri, and Microsoft’s voice AI initiatives. These giants can absorb losses indefinitely while building superior technology.
- Customer Concentration Risk: With a small revenue base of $131 million, losing even one or two major clients could significantly impact growth trajectory and investor sentiment.
- Cash Burn Reality: With margins like -170% on net income, SOUN is essentially a cash-burning machine betting on reaching profitability before running out of runway. Notably, the company does expect to turn profitable on adjusted EBITDA basis by end of the year. See how SoundHound’s financials compare with some of its peers.
- Market Sentiment Shifts: When risk appetite disappears – and it will eventually – these momentum-driven AI stocks get obliterated first.
- Dilution Risk: Companies burning this much cash typically resort to equity raises, which dilute existing shareholders. It’s a vicious cycle that punishes early believers.
What’s the Real Downside Risk?
So what’s the real downside risk for SOUN stock from its current levels of $18?
If history is any guide, it’s under $2.
Are you prepared for it?
That’s not fear-mongering – that’s what actually happened in 2022. And the fundamentals haven’t dramatically changed. The company is still burning cash, still racing toward profitability while bleeding money, and still trading on pure growth expectations and future potential.
If this level of risk makes you uncomfortable, you could explore the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.
The Bottom Line
Look, the purpose of this analysis is to make investors aware of what’s the real downside risk with SOUN stock. It may or may not happen. But the risk element is surely high. When the music stops – investors holding speculative growth stocks face potential catastrophic losses. You’re not buying a piece of a profitable business; you’re placing a bet on voice AI becoming ubiquitous soon enough for SoundHound to survive the cash burn and compete against tech giants with virtually unlimited resources. It all comes down to whether you can stomach what the volatility might look like on the downside, if things don’t go as expected with SoundHound.
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