SoundHound

Shares of SoundHound AI (SOUN 0.31%) rose 23.5% in September 2025, according to data from S&P Global Market Intelligence. It wasn’t a smooth ride for the artificial intelligence (AI) expert, with several big jumps and a couple of painful drops along the way — but it’s hard to complain about a monthly gain of more than 20%.

The meme stock crowd is back in action

Unfortunately, it looks like SoundHound AI is sliding back into the meme stock phenomenon again.

The big swings in September’s stock chart seem more closely correlated to online discussion volumes than to broader stock market trends — and the spikes didn’t really line up with SoundHound AI’s handful of business-related announcements. It’s an “all talk and no action” sort of thing.

I mean, the company isn’t sitting on its hands. Its business moves just aren’t inspiring bullish price moves. Social media posts are doing more of that work.

Let’s look at the three press releases SoundHound AI shared last month:

• On Sept. 4, the company released a custom AI agent for Primary Health Solutions, a regional healthcare network near Cincinnati and Dayton, Ohio. The Denise agent delivers quick answers to common questions, online or over the phone. SoundHound AI’s stock rose 7% that day — not too shabby!

• Sept. 9 saw a 5.4% stock price drop as SoundHound AI acquired Interactions, an agentic AI specialist. This deal should boost the company’s operating profits from the get-go and expand its market reach into new sectors such as retail management and insurance. For what it’s worth, the S&P 500 (^GSPC 0.34%) index rose 0.3% the same day.

• Finally, Red Lobster ordered a systemwide SoundHound AI solution for its phone ordering services on Sept. 23. This announcement should have started a victory march at SoundHound AI’s headquarters, but the stock didn’t move at all on the news. Instead, a 13% price drop followed over the next two market days. The S&P 500 held steady across this period.

The market reaction on Sept. 4 made sense, but I see the opposite effect around the (arguably more significant) announcements that followed.

Image source: Getty Images.

Great company, but the stock valuation is getting silly again

The meme stock action kind of makes sense. I understand that investors are getting excited about SoundHound AI’s high-quality voice controls and related AI tools. I’m convinced that the company has a bright future, and the shares I’ve been holding since the spring of 2024 should serve me well in the long run.

But the recent market action is too optimistic. People are jumping to conclusions, long before SoundHound AI gets a chance to prove its actual market value. On Oct. 1, the stock is up 238% over the last year and 424% in three years. It’s also trading at the nosebleed-inducing valuation of 50 times trailing sales. Profit-based metrics don’t make sense, because the company is deeply unprofitable so far.

So I’m holding on to my existing SoundHound AI shares for the long haul, but I’m not tempted to buy any more at these lofty prices. Check again when this meme-stock rally fades out. It’s too early to ask for stronger sales or positive profit margins.

SoundHound AI (SOUN -0.48%) quickly became a top AI stock over the past several years, as the company’s conversational AI platform has been adopted by restaurants, automakers, healthcare leaders, and more. SoundHound’s ability to attract new customers and rapidly increase its revenue has helped push its share price up nearly 200% over the past year.

But the company isn’t without its issues. Profitability remains elusive; the company’s gross margins have ticked downward over the past year, and its valuation is sky-high. That has left many investors wondering where SoundHound might be over the coming year and whether the stock is a buy right now. Here’s what I think could happen with the company over the next year.

Image source: Getty Images.

1. More customer growth and sales momentum

SoundHound has a knack for attracting new customers and expanding its revenue, and the company continued these trends in Q2. Here are just a few of the wins SoundHound had in the quarter:

• Had a “breakthrough quarter” for new customers and renewals in its restaurant segment.
• Won a major OEM automotive customer in China, which sells vehicles domestically and worldwide.
• Added “one of the world’s largest healthcare companies” to its customer list.
• Has seven of the top 10 global financial institutions as customers, upselling and renewing to four of them in the quarter.

The result of its strong customer growth, renewal, and upselling was that revenue jumped 217% to $42.7 million, and management raised its 2025 revenue guidance to $173 million, up from previous guidance of $167 million, both at the midpoint.

SoundHound’s revenue growth has been very impressive over the past several years. Take a look at the past two years and guidance for the current year:

Source: SoundHound filings. Calculations by author.

If SoundHound achieves its full-year revenue guidance for 2025, it will have more than doubled its sales over the past year. And with its impressive Q2 results, the company is well on its way to achieving its goal.

2. Profitability could still be an issue

If there’s one thing that’s troubling about SoundHound, it’s the fact that, despite its impressive sales growth, the company still isn’t profitable.

On a generally accepted accounting principles (GAAP) basis, SoundHound lost $0.19 per share in Q2, widening its loss from $0.11 per share in the year-ago quarter. On an adjusted (non-GAAP) basis, the loss narrows to $0.03 per share, but no matter how you slice it, the company is losing money.

What’s more, SoundHound is burning through cash while its gross margins are slipping. The company’s negative free cash flow was about $25 million in Q2, and is at about negative $112 million over the past 12 months. Meanwhile, gross margins dropped to 58.4% in Q2 from 66.5% a year earlier — a sign the company is finding it increasingly difficult to translate sales growth into profitability.

As of now, there’s little evidence that SoundHound is making significant strides toward profitability. That should concern investors, because its impressive sales growth ought to make profitability easier. What’s more, with a price-to-sales (P/S) ratio of 43, SoundHound AI’s stock is already expensive. For context, the software AI stock C3.ai trades at just 6 times sales, while fellow conversational AI company Cerence trades at 1.8.

So, is SoundHound stock a buy?

Some investors may have a higher appetite for risk and care less about profitability than I do, but I don’t believe SoundHound is a buy right now. If the company can reduce losses, slow spending, and improve gross margins, there could be a case for buying it — but at present, it doesn’t appear to be moving in that direction. With a price-to-sales ratio of 43, investors are paying a steep premium for a company that still faces profitability concerns.

The hype over artificial intelligence (AI) stocks helped shares of SoundHound AI (SOUN 7.26%) hit a 52-week high of $24.98 last December. But in 2025, its stock is down about 35% through Sept. 3. The drop could be a signal that now is a good time to invest in this AI tech provider. Or does it suggest reasons exist to steer clear of the stock?

To determine whether SoundHound is a worthwhile investment in the AI sector, a deeper look into its business is required. Here’s an analysis into this company specializing in voice-activated conversational AI.

Image source: Getty Images.

SoundHound’s strengths

SoundHound possesses attributes that make it a compelling investment. In the second quarter, its revenue hit $42.7 million, an impressive 217% increase over last year.

The company’s sales success prompted management to raise the revenue outlook for this year. SoundHound now expects 2025 sales of $160 million to $178 million, a substantial step up from the previous year’s $84.7 million.

The company made strategic acquisitions in 2024 that expanded its business beyond the automotive sector, which had previously accounted for 90% of sales. Today, SoundHound’s income is more diversified, as its services reach into industries such as restaurants, healthcare, and financial services.

This diversification helps its business to weather economic downturns in any one sector. Now, no one vertical contributes more than 25% of revenue.

SoundHound also boasts a robust balance sheet. In Q2, total assets were $579.5 million, including $230.3 million in cash and equivalents. Total liabilities were $219.7 million.

SoundHound’s shortcomings

But the business has downsides, too, notably its lack of profitability. SoundHound’s Q2 operating loss widened considerably to $78.1 million from a $22 million loss in the prior year. This increase was primarily a result of greater expenses related to its acquisitions.

The company is working to improve its financials. Management’s goal is to be profitable on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis by the end of 2025. Adjusted EBITDA stood at a loss of $14.3 million in Q2.

In addition, SoundHound intends to strengthen its Q2 gross margin of 39%, which is down from 63% in the prior year, again due to the acquisitions. A boost in gross margin will support its goal of achieving profitability.

The company noted, “We expect to gradually improve gross margins in the midterm,” as it finds cost synergies while integrating its acquired businesses into existing operations.

Other considerations with a SoundHound investment

A key factor that dragged down SoundHound stock this year was that Nvidia sold its entire stake in the company. Nvidia revealed the sale in a February filing, which led investors to follow suit, causing shares to plunge nearly 30%. Nvidia’s move made sense at the time. SoundHound’s share price valuation was quite high when the AI semiconductor chip leader decided to sell.

You can see this in the stock’s price-to-sales (P/S) ratio, which measures how much investors are willing to pay for every dollar of revenue produced over the trailing 12 months, particularly in comparison with competitor Cerence, which also offers voice-activated AI products for the automotive industry.

Data by YCharts.

The chart shows SoundHound’s sales multiple peaked around the end of last year, indicating its stock was expensive. Its P/S ratio is lower now, but still elevated compared to Cerence’s.

Arguably, SoundHound deserves a higher valuation, since Cerence’s revenue in its fiscal Q3, which ended June 30, declined to $62.2 million from $70.5 million in the previous year. Meanwhile, SoundHound’s Q2 sales grew over 200% year over year. That said, SoundHound stock’s current valuation is so far above Cerence’s that it still looks high.

SoundHound has rising revenue and a diversified business in its favor, but its elevated stock valuation suggests it’s best to put it on your watch list and wait for the share price to drop.

You may also want to consider waiting for SoundHound’s Q3 earnings report to see if it’s made headway on reducing operating expenses and improving its gross margin and adjusted EBITDA before deciding to invest.

I’ve been standoffish on SoundHound AI (SOUN 2.70%) for almost a year now. I love what the company is doing and see tremendous long-term value in the stock, but the share price has been way too rich since a meme stock surge in December 2024.

The worst of last year’s overheating has subsided, and SoundHound AI keeps making strides in its business results. Is the stock a good investment at this point?

Let’s take a look.

SoundHound AI by the numbers

I can’t ignore one simple fact: This is still an expensive stock.

SoundHound AI trades at a lofty 38 times trailing sales, and its profits are consistently negative. I mean, the company reported a $78 million operating loss in the second quarter of 2025, based on $42.7 million in top-line revenues.

Some of that financial pain comes from noncash accounting adjustments, but there’s some real substance to other line items. The cost of revenues rose from $5 million to $26 million. Sales and marketing expenses nearly tripled.

As a result, SoundHound AI is burning actual cash, too. Operating cash flow was -$18.5 million. So the company is keeping the lights on (and building a robust cash reserve, in all fairness) by selling new shares while they’re pricey.

And that’s not good news for existing shareholders such as yours truly. The diluted share count rose by 21% over the last year, undermining the effective stock returns by a similar percentage.

Can SoundHound AI’s upside outweigh the crushing downsides?

So far, not so good. SoundHound AI’s stock trades at a nosebleed-inducing price despite weak revenues and deep bottom-line losses. What’s the upside to this artificial intelligence (AI) stock, then?

SoundHound AI is growing at a blistering pace. The skyrocketing administrative expenses are a necessary increase, since second-quarter revenues more than tripled year over year. And thanks to the cash-boosting combination of high share prices and high-volume sales of new stock, SoundHound AI can afford partnerships, acquisitions, and product development projects that used to be out of reach.

Moreover, most of the soaring sales are tied to long-term service deals or subscription-style contracts. The company used to report order bookings in every quarterly business update, last reported at $1.2 billion of unfilled long-term contracts by the end of 2024. Due to volatile shifts in this metric, management will only report it at the end of each fiscal year in the future.

But this is the meat and potatoes of SoundHound AI’s revenue growth recipe — a billion-dollar balance of subscriptions that will convert into actual revenues over a multiyear period. Including this incoming pile of future revenues in your market-value calculations makes SoundHound AI’s stock more palatable. With a $5 billion market cap today, the stock trades at approximately 4.2 times the latest backlog balance.

Image source: Getty Images.

Should you buy, sell, or hold SoundHound AI today?

SoundHound AI’s business is growing by leaps and bounds. Its AI-driven voice controls are useful for carmakers, drive-thru window services, and phone-based menu systems, just to name a few target markets. I can imagine this company evolving into a tech giant with a large market footprint — but it could take many years to reach that pinnacle.

Many things could go wrong in the meantime. The heavy stock dilution is one troublesome concern. And SoundHound AI’s technology is today’s top of the line, but what if someone else develops an equal or even stronger alternative? That all-important order backlog could dry up if this hypothetical rival starts snagging every available business opportunity.

So it’s a risky investment today, and I don’t think the market makers are accounting for these potential downsides in SoundHound AI’s current valuation. I’m not selling my existing shares, but I’m not reaching for the “buy” button either. At this point, SoundHound AI falls right in the middle of the classic buy, hold, or sell ratings scale. Your mileage may vary, depending on your appetite for unprofitable sales growth.