Down 47% From Highs, Is SoundHound AI Stock Worth Buying Now?

SoundHound AI (NASDAQ resonance code: SOUN)is one of the hottest artificial intelligence (AI) stocks this year. Its stock price performance in 2024almostbeINVISTA(used form a nominal expression)triple-154% vs. 81%. Coincidentally, it was the news of the chip maker's investment in SoundHound earlier this year that led to a surge in popularity for the stock.

In recent weeks, however, SoundHound's stock price has begun to give back some of its impressive gains. While the company has still had some great returns this year, it is now down more than 47% from its all-time high of $10.25.

Is this a good time to invest in SoundHound AI, given the recent flurry of activity?

SoundHound's business is promising, but there are risks

SoundHound has the potential to be a great AI company by creating conversations between AI and the company's customers. A prime example is the ordering process at a drive-thru, where SoundHound's technology improves speed and accuracy.

Some of the top brands using the company's platform include White Castle andKrispy KremeElectric vehicle manufacturers are also using SoundHound's platform to provide better hands-free access to drivers. Electric vehicle manufacturers also use SoundHound's platform to provide drivers with better hands-free communication.

The Company's recent results are encouraging, with revenues up $80% over the prior year. sales for the last three months of 2023 were $17.1 million, compared to $9.5 million in the same period last year. Total revenue for the year was $45.9 million, an increase of 47%.

However, the company's business remains unprofitable, with a total net loss of $18 million in the last quarter, which was higher than revenues. High R&D costs ($12.7 million) and G&G expenses ($7.6 million) were enough to dash SoundHound's hopes for profitability in the last quarter, even before taking into account sales and marketing costs ($4.5 million) and cost of sales ($3.9 million).

While high costs are not uncommon for emerging companies, investors should pay close attention to large losses, especially when they exceed revenues. On a positive note, operating expenses did drop 23% from a year ago.

However, without stronger financials, investors run the risk that the company will need to rely on equity issuance to fund operations, which would lead to dilution and put downward pressure on the stock price.

The stock price is still high.

Although SoundHound's stock price has fallen in recent weeks, that doesn't mean it's cheap. Currently, it trades at a P/E of 130x and sells at nearly 30x.

Investors believe that the company's artificial intelligence platform will lead to more revenue growth in the future. The company's strong growth to date doesn't mean it will continue. As the company's revenue increases, realizing high growth rates will become more difficult. And given the attractive growth potential of the AI space, competition is bound to be fierce.

Should You Invest in SoundHound AI Stock?

With the backing of Nvidia, investors have some hope for SoundHound. But that doesn't mean it's a safe purchase. Just because Nvidia is assuming the risk does not mean that SoundHound is suitable for the average investor.

With a valuation of less than $2 billion, it's still a relatively small mid-cap stock. Considering that many investors may already think it's too late to invest in artificial intelligence stocks like Nvidia and other more established companies, it's easy to see why SoundHound is a tempting choice right now. However, as promising as this stock is, it's by no means a "buttoned-up" buy given its risks, and I wouldn't recommend investing money you can't afford to lose.

If you invest in SoundHound AI stock and are willing to take the risk, be prepared for continued volatility.

Should you invest $1,000 in SoundHound AI now?

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David Jagielski does not own any of the stocks mentioned above.The Motley Fool holds a recommendation for Nvidia.The Motley Fool has a disclosure policy.

Down 47% From Highs, Is SoundHound AI Stock Worth Buying Now? This post was originally published by The Motley Fool.