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Soundhound AI's (NASDAQ: SOUN) shares skyrocketed as much as 883% last year. However, the artificial intelligence (AI) stock is now down roughly 55% from its peak in late December.
You can blame part of this decline on the Federal Reserve. Investors were spooked when the Fed signaled there could be fewer interest rate cuts than expected in 2025. This caused many high-flying growth stocks, including Soundhound AI, to fall.
However, another culprit was behind Soundhound AI's plunge of nearly 30% in recent days -- Nvidia (NASDAQ: NVDA). Is the beaten-down AI stock a buy after its Nvidia-fueled sell-off?
How Nvidia caused Soundhound's latest swan dive
One of the best things that can happen for a small company is to score a major investment from a big company. Many investors see that as a sign they can be more confident in the small company.
Nvidia first invested in Soundhound AI in 2017 as part of a $75 million financing round. In February 2024, the huge GPU maker revealed in a regulatory filing how big its stake was in Soundhound. This disclosure provided a big catalyst for the small AI stock.
But the same hand that gives can also take away. Last week, Nvidia submitted another regulatory filing that showed it had completely exited its stake in Soundhound AI. Just as investors viewed Nvidia's initial position in Soundhound as a vote of confidence, they saw the sale of all its shares as a vote of no confidence.
That could be reading between the lines too much, of course. Nvidia might have several reasons for selling all of its Soundhound AI shares that don't reflect less optimism about the company. However, perceptions matter -- and Nvidia's sale of Soundhound was seen in a negative light.
The same investing premise as before
But there's a good case to be made that the investing premise for Soundhound AI is the same as it was before Nvidia's regulatory disclosure. The company's prospects still appear to be promising.
Soundhound AI's sales are booming. In the third quarter of 2024, the company reported its highest revenue ever with sales jumping 89% year over year. Revenue was also more diversified than in the past, with 12% coming from Soundhound's largest customer compared to 72% in the prior year period.
This diversification also improved across industries. In Q3 2023, over 90% of Soundhound's revenue came from automotive customers. A year later, customers in the automotive, restaurant, financial services, healthcare, and insurance sectors each contributed between 5% and 25% of total revenue.