Is SoundHound AI Stock Proving to Be the Real Deal?

Key Points

• SoundHound posted record quarterly revenue recently, with its top line surging by 217%.

• The company has benefitted from having a diverse customer base, giving it many ways to grow its business.

• It still, however, is nowhere near turning a profit, and its rate of cash burn has accelerated.

• 10 stocks we like better than SoundHound AI ›

For investors who don't want to simply load up on Nvidia and other already established artificial intelligence (AI) companies, it can be challenging to find the next big AI stock to buy. There are a lot of companies that claim they have AI-powered products and services -- and sprinkle the term AI into all of their press releases and reports -- but simply being involved with AI doesn't mean that a stock is destined to rise in value.

One company that has been a popular option for investors in the past couple of years has been SoundHound AI (NASDAQ: SOUN). It's involved in voice AI software, making it easy for people to converse with AI, including placing orders at a drive-through.

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There have been question marks around SoundHound's business and whether it is indeed destined to be a top AI stock to own for the future, or if it's just one of many in an increasingly crowded space. With the company recently coming off a strong quarter that showed a lot of growth, has it proven that it is, in fact, the real deal, and that it's an AI stock worth investing in?

Image source: Getty Images.

SoundHound posts 217% revenue growth

On Aug. 7, SoundHound released its second-quarter results. The company reported an all-time high for revenue, which totaled $42.7 million -- that's more than triple the $13.5 million that the business reported in the same period last year. The tech company has been expanding its business in many industries as its vast customer base has helped it expand across multiple sectors.

The company also has released Amelia 7, which is its agentic AI platform that it says can be used for complex queries and perform them "as part of natural, humanlike interactions." SoundHound says that it now has 15 large enterprise customers that are migrating to this new platform.

The company is still no closer to profitability

While SoundHound reported strong growth in its most recent quarter, its financial performance was far from flawless. Its net loss doubled, from $37 million a year ago to just under $75 million. What also didn't look great was a significant decline in gross margin -- from 63% to 39%. The company says that this was mainly the result of its acquisition of AI company Amelia back in 2024. And it's that acquisition that has been a key reason why SoundHound's customer base has become more diverse, and why its revenue is up so much; the prior-year results didn't include contributions from Amelia.

Another issue to consider is that SoundHound has been burning through more cash. Over the past six months, it used up $44 million during its day-to-day operating activities, compared with $40 million during the same period last year.

Unfortunately, while SoundHound has experienced significant growth, it comes with an asterisk. Not only were the results boosted by an acquisition, but they didn't move the needle in terms of improving cash flow and overall profitability. Without that, this remains a highly risky business to invest in.

SoundHound AI still has a lot to prove

Mergers and acquisitions can be a great way for companies to manufacture growth. By simply adding another company into the mix, you're adding sales without needing to grow organically. SoundHound highlighted its overall growth rate last quarter, but not its organic growth, which may tell a much different story.

While the headline of 217% growth sounds impressive, I'm not convinced that SoundHound is really on the right path. If its margins are deteriorating and losses are getting bigger, it may simply be incentivizing customers with lower prices and promotions in order to grow sales.

Shares of SoundHound jumped on the quarterly results, but the stock is still down around 18% this year. And as the excitement from the revenue growth cools and investors take a closer look at the numbers and see the risks that still linger with the stock, I wouldn't be surprised to see it give back some of its recent gains.

This is still a risky stock to own, and until SoundHound shows that it has a path to profitability, you may be better off steering clear of it.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.