Why SoundHound AI's Earnings Show the Stock Can Move Higher

One of the most important questions investors need to ask during and after an earnings announcement for a stock is whether growth has been priced in or not. Typically, the days after a stock moves on earnings are when broader market participants attempt to land on a fair price that reflects the important information they’ve just received, and that is where some will fall off the track.

Others will stick to the right narrative for further gains.

That question is being asked for shares of SoundHound AI Inc. (NASDAQ: SOUN) after the stock rallied by over 26% in a single day after reporting its latest quarterly earnings results. Not only is this a critical time to be aware of what comes next, but this one is particularly tricky, considering the company has yet to achieve net profitability per share, sending some investors into a cloud of doubt.

Today, some of those doubts will be removed as investors hone in on the numbers that really matter and explain why the macro backdrop stands to help SoundHound’s services and technology into another wave of expansion for the coming quarters. When it comes to the technology sector, this stock is as good as any other despite not having net profitability.

Here’s why that is.

Expansion at the Forefront of SoundHound AI

For this $5.4 billion company, a 26% rally takes more than just a good quarter and justified attention from the market overall. As most investors are focused on the semiconductor and chipmaking areas of this artificial intelligence race, such a move implies that sentiment and attention might be shifting into other areas.

However, SoundHound's bull case comes from a much broader thesis. As President Trump changes migration policies in the United States, industries like retail and service-based companies see some of their workforce demographics change. The remaining ones are now overloaded with more work to compensate for the gap.

In recent employment reports, it is no surprise that many workers are asking for higher wages. If businesses agree to these increases, they face two options: pass the added costs on to consumers, which could fuel inflation, or invest in technology to improve efficiency.

This is why SoundHound’s earnings show that the company’s services are contracted across several restaurant brands. Red Lobster, Applebee’s, IHOP, and others have sought to add SoundHound’s artificial intelligence capabilities to expedite their service process, efficiently reducing some costs to accommodate potential higher wages.

And that’s not all. SoundHound has been a successful case study in other industries, such as healthcare, retail, financial services, and even automotive. Even Chinese car manufacturers have contracted SoundHound’s software to be integrated into their vehicles, a massive growth market for the company’s future.

It’s All in the Numbers

With all these tailwinds in mind, investors shouldn’t be surprised to see the company’s net revenue grow to $42.7 million this quarter, a massive 217% increase from the same quarter last year, a record in the company’s history.

Even after this 26% rally and critical footprint expansion, SoundHound stock still trades at a dismal 54% of its 52-week high, meaning investors can still enjoy a discounted opportunity to be exposed to this further growth down the line. Moreover, enough bears are out there to trigger a jet-fueled rally higher.

Considering that short positions in SoundHound stock now amount to $1.4 billion, or 33.7% of the total float, another rally like the one investors just witnessed could trigger what’s known as a short squeeze. This is an event where short sellers are forced to close their positions at a loss, which involves buying back the stock.

This additional buying pressure, worth up to $1.4 billion, would be a massive boost in terms of demand for the stock, and it will be translated into higher prices if this happens. Now, for the other side of the equation, the recent earnings did trigger new institutional buying interest for this company.

Those from Geode Capital Management justified boosting their holdings in SoundHound stock by 8.3% as of the day of the earnings release, bringing their entire position to a high of $94.8 million or 2.2% ownership in the whole company. This is not something investors should take lightly.

Institutions often stay away from companies this small, so when they decide to move into them, chances are they are expecting a higher long-term run backed by fundamentals, as investors can verify today for SoundHound. With this much financial momentum, it’s a matter of time before this stock reports net profitability and retests old 52-week highs of just under $25 per share.

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