One Wall Street analyst thinks SoundHound AI stock still has room to rise after its plunge. The stock is down 50%, is it worth buying?

with respect toSoundHound AI (NASDAQ resonance code: SOUN)It's been a thrilling and exciting year for investors of the Artificial Intelligence (AI) and Speech Recognition specialist, which kicked off 2024 with a 23% drop on Feb. 5, but then did the opposite by March 15, posting a 323% gain. Then it took a nosedive, losing half its value by Wednesday's close. After such a stunning fall, the company's shares are still up 1,12% since the start of the year.

One Wall Street analyst thinks the drop in stock price is a good thing.

Risks are reduced but still present

Cantor Fitzgerald analyst Brett Knoblauch upgraded shares of SoundHound AI from a Hold (Sell) rating to a Neutral (Hold) rating, while maintaining a $4.90 price target. That's a gain of about 10% from the stock's closing price on Wednesday.

The analyst previously issued a rare double downgrade on SoundHound AI, primarily due to its frothy 40 times sales valuation. However, the analyst also cited a number of other concerns, citing SoundHound AI as a risky stock. Now that the stock's valuation has shrunk from 45 times sales to 22 times sales, Knoblauch argues that downside risk is now matched by upside prospects.

I continue to believe that investors should proceed with caution. The risks initially highlighted by analysts remain, including an opaque operating model, insufficient capital expenditure and potential customer churn.

There were other issues as well.SoundHound AI acknowledged in its 2023 annual report that it identified a "material weakness in internal control over financial reporting," which led the company to restate some of its financial statements. This is a serious red flag that would have caught the attention of the regulator.

I have also expressed concerns in the past about how SoundHound accounts for its backlog. After Koon management "updated" this metric, the backlog now includes "committed customer郃s" and "realizable potential revenue," which relies heavily on Koon management's Assumptions.

Even after a sharp correction, SoundHound AI still sells for 22 times its sales, but it has yet to make a profit. Investors should be cautious about this volatile high priced stock.

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Danny Vena does not own any of the shares listed above.The Motley Fool does not own any of the shares listed above.The Motley Fool has a disclosure policy.

One Wall Street analyst thinks there's room for SoundHound AI stock to rise after its plunge. The stock is down 50%, is it worth buying? This post was originally published by The Motley Fool.