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I Wouldn't Touch SoundHound AI Stock With a 10-Foot Pole. Here's Why.

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There are no two ways about it: SoundHound AI (NASDAQ: SOUN) stock has been on fire.

Part of the attraction is the obvious ties to artificial intelligence (AI), which has lifted many stocks in the space over the past year or so. Then, in mid-February, a regulatory filing revealed that Nvidia owned a small stake in SoundHound AI, and the stock was once again off to the races, soaring 295% in the weeks that followed. Furthermore, investors cheered SoundHound's fourth-quarter results, as revenue grew 80% year over year while the company slashed its losses by nearly half.

While all that might seem like good news, there were other, more troubling revelations suggesting SoundHound AI investors should be careful. In fact, I wouldn't touch SoundHound AI stock with a 10-foot pole. Here's why.

A person staring intently at a stock chart.
Image source: Getty Images.

The initial catalyst for concern

A short report was released on March 19 titled "Lies, Damned Lies, and Cheeseburger 'AI'." The report suggested that SoundHound AI was a "failing company peddling lies and deception" and it issued a stock price target of $1.

The report took exception to a number of aspects of SoundHound's business, saying the company is "misleading investors about their AI capabilities," often returns incorrect information, and has become a "commodity service." As evidence, the report suggests that "SoundHound has admitted as much by removing claims about the superiority of their product from their recent 10-K." A quick look through SoundHound's two most recent 10-Ks (annual reports) shows that it did remove a table that purported to show a number of ways that SoundHound AI's voice AI was superior to the competition.

Another allegation is that SoundHound AI is "hiding the fact that it has lost some of its biggest customers," including Mercedes-Benz, Deutsche Telekom, and Netflix. The report suggests that to hide client defections, SoundHound "removed all customer names from the 2023 10-K." A review of the past several 10-Ks does indeed show that SoundHound removed a list of global customers. To be fair, there are a number of reasons SoundHound could have taken this action. That said, the omission does seem curious, particularly given the list of customer-centric announcements included in its quarterly earnings press release.

The report also alleges that Sound disclosed a retention rate of 80% in 2022, a "statistic that is mysteriously absent from the 2023 10-K." This was also verified from a review of the respective 10-Ks.