SoundHound AI Skyrocketed Today -- Is the Stock a Buy Right Now?

Key Points

• SoundHound AI stock has been on a tear following its recent quarterly report.

• Following SoundHound AI's quarterly report last week, Ladenburg raised its rating on the stock from neutral to buy.

• Ladenburg raised its one-year price target on SoundHound AI stock from $9 per share to $16 per share -- but the stock's price after today's surge is just shy of the new target.

• 10 stocks we like better than SoundHound AI ›

SoundHound AI (NASDAQ: SOUN) stock booked another day of big gains in Monday's trading. The conversational artificial intelligence (AI) company's share price closed out the day's trading up 17.3% despite the S&P 500 and the Nasdaq Composite both retreating 0.3% in the session.

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SoundHound AI saw big stock gains in conjunction with the blockbuster quarterly results it published last week, and the AI player has continued to see strong valuation momentum early in this week's trading, thanks in part to bullish analyst coverage. Despite a massive rally recently, SoundHound AI stock is still down roughly 20% across this year's trading.

Is SoundHound AI stock a buy right now?

With the coverage it published today, Ladenburg upgraded its rating on SoundHound AI stock from neutral to buy. The investment firm also raised its one-year price target on the stock from $9 per share to $16 per share and cited strong contract momentum and long-term growth opportunities in the conversational AI space as reasons for its staunchly bullish pivot. Notably, the stock closed out today's trading at $15.90 per share, which leaves very little potential upside in relation to Ladenburg's updated price target.

On the heels of its recent valuation run-up, SoundHound AI is now valued at approximately 38 times this year's expected sales and has margins that still look relatively low for a software services company. That makes the stock a risky investment at current levels. Alternatively, the business has been posting very strong sales momentum -- with revenue rising 217% year over year to reach $42.7 million last quarter. SoundHound AI's valuation profile means that the stock comes with a high level of downside risk, but the possibility that the company is still in the early stages of a much bigger long-term growth story suggests the stock could be a worthwhile portfolio addition for AI-focused investors with high risk tolerance.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.