Buy or Wait? Evaluating SoundHound AI's Investment Case

Riding the artificial intelligence (AI) boom, SoundHound AI, Inc.’s SOUN shares have gained over 250% in the past year. The company’s revenues increased substantially, and the company raised its full-year guidance primarily due to a growing customer base. However, continued losses and declining margins have led investors to question whether it’s the right time to buy the stock. Let’s explore –  

Reasons to be Bullish on SoundHound AI 

SoundHound’s products have gained significant popularity by integrating AI with audio recognition technology, making them much more advanced than older, simpler systems like Alexa. Notably, Houndify helps businesses develop their own AI-powered voice recognition services and is widely used by a diverse range of customers, from restaurants like Chipotle Mexican Grill, Inc. CMG to card companies like Mastercard Incorporated MA.  

SoundHound has successfully attracted new customers in the second quarter, marking its strongest period to date. It also secured a major OEM automotive customer in China and added one of the world’s largest healthcare companies as its customer. Needless to say, SoundHound’s strong customer growth is adding to the revenues. 

In the second quarter, SoundHound’s revenues were $42.7 million, up 217% year over year, citing investors.soundhound.com. Moreover, the company expects underlying momentum to continue and raised full-year revenue expectations to $160-$178 million. The full-year revenue guidance is significantly higher than last year’s revenues of $84.6 million.  

Additionally, as of June 30, 2025, SoundHound has substantial cash and cash equivalents of $230 million and no debt. This means the company can create growth opportunities and has strong creditworthiness. The cash reserve also protects SoundHound from any unforeseen economic downturns. 

Is Now a Good Time to Buy SoundHound AI Stock? 

Given SoundHound’s solid revenue growth and increasing interest from large enterprise customers in its conversational AI platform, the company seems well-positioned to move toward profitability in the near future. This should encourage existing shareholders to hold onto SOUN stock.  

Furthermore, the company’s technical indicators signal an uptrend, as the stock is presently trading above its long-term 200-day moving average (DMA) and short-term 50 DMA. 
  

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However, SoundHound isn’t profitable yet. On a GAAP basis, SoundHound has posted a loss of $0.19 a share in the second quarter, more than a loss of $0.11 a share in the year-ago quarter. On a non-GAAP basis, the company also reported a loss of $0.03 a share. Additionally, the company’s non-GAAP gross margin was 58.4%, less than 66.5% a year ago.

So, the company struggled to achieve profitability despite revenue growth, casting doubts on the long-term feasibility of its business model. Therefore, new investors should refrain from investing in the SOUN stock now. SoundHound AI currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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