Artificial intelligence (AI) stocks soared over the past two years as investors got excited about this potentially game-changing technology. And SoundHound AI(NASDAQ: SOUN), a company specializing in voice AI, saw its share price take off as part of this new gold rush. Over 2023 and 2024, SoundHound stock surged 1,000%, outperforming AI market superstar Nvidia, which climbed 800% during that period.
But AI stocks lost some of their luster earlier this year amid concerns about economic growth and potential spending on this newish technology. President Trump set out plans for tariffs on imports, and investors worried that these duties would increase prices on a wide range of products, paving the way to a weak economy and even a recession. As a result, investors fled high-growth companies that could be among the first to suffer in such an environment.
And that resulted in declines in AI stocks, including SoundHound. The voice AI player has lost about 50% since the start of the year. Yet the company continues to deliver explosive growth, reporting a revenue increase of 151% in the recent quarter. Meanwhile, Trump's initial tariff deal with China has offered investors optimism that tariffs may not be as tough on the economy as expected -- and that's helped indexes rebound.
Is SoundHound AI a buy now? Let's find out.
Image source: Getty Images.
Why SoundHound stands out
So, first, a bit of background on SoundHound, a company that stands out from rivals in the voice AI space thanks to its innovation. Most voice AI systems translate speech to text and then to meaning, but SoundHound translates speech directly into meaning. While this might seem like a detail, it actually makes a huge difference, resulting in speed and accuracy. This technology is protected by more than 200 patents, and this, along with strong barriers to entry, offer SoundHound a competitive advantage.
All of this has helped SoundHound grow in a wide range of industries, from restaurants to automotive, healthcare, finance, and more. For example, the company recently expanded its phone answering and AI services contract with a major U.S. pizza chain. And in healthcare, it expanded or renewed contracts with three customers, including a major medical billing company.
In the quarter, as mentioned, revenue soared in the triple digits. And importantly, revenue from each individual customer came in at 10% or less of total revenue, showing that SoundHound doesn't rely heavily on just one or two contracts but instead is well diversified.
The fact that SoundHound's revenue totaled just under $30 million in the quarter suggests this company has plenty of room for expansion. The total addressable market for SoundHound's services is about $140 billion.
SoundHound's strengths in AI agents
This company also is taking big steps in an area that could represent the next AI growth driver, and that's agentic AI. This involves software that applies AI to real world problems by studying complex situations, finding solutions, and applying them. SoundHound recently launched its Amelia 7.0 platform, one that customers across industries can use to carry out a range of key tasks. SoundHound offered an example during its earnings call, saying Amelia could handle your reordering of a hard-to-pronounce prescription, the payment of a recent medical visit, and the making of a new appointment.
It's also positive to note that SoundHound has a cash position of $246 million and doesn't have debt. So this AI player is in great shape to deliver more growth, especially considering that the AI market is expected to reach beyond $2 trillion by the early 2030s. This market isn't all voice AI, of course, but this enormous size shows demand for AI in general is high -- and SoundHound could be well positioned to benefit.
A steep valuation
All of this is great, but it's important to keep in mind that, even considering recent declines, SoundHound stock still looks pricey at current levels, trading at 38 times sales. So investors who are more value-oriented may find investments more adapted to their style elsewhere. It's also important to remember that in a market where uncertainty remains, investors may hesitate to invest in smaller, younger AI companies like SoundHound and may opt for giants like Nvidia or more diversified businesses like Amazon. This could weigh on SoundHound's performance in the near term.
So, is SoundHound a buy? This depends on your comfort with risk and your investment style. As mentioned, SoundHound isn't a buy for value investors, and cautious investors should look to other stocks too. But for patient growth investors who plan on holding on for the long term, SoundHound makes a solid buy on the dip today.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.
