SoundHound AI Stock: Buy, Hold, or Take Profits Ahead of Q3 Earnings?

SoundHound AI, Inc. SOUN is poised to report its much-anticipated third-quarter results after the market close on Nov. 6. Despite seeing strong revenue growth, SoundHound’s concerns about profitability persist. So, what stance should investors take on SOUN stock before its earnings release? Let’s take a closer look –  

SoundHound Stock: Q3 Revenue Expectations 

From a music recognition app, SoundHound has evolved into an AI voice company, allowing it to attract clients in the automotive, restaurant and finance sectors. For several quarters, SoundHound has generated most of its revenues from Houndify, its platform for creating custom AI voice recognition services. Companies ranging from automakers like Stellantis to restaurants like Chipotle Mexican Grill, Inc. CMG and card companies like Mastercard Incorporated MA use Houndify. 

Thus, it is expected that Houndify’s success may also drive SoundHound’s revenue growth in the third quarter. For the quarter ending in September, the Zacks Consensus Estimate for SoundHound’s revenues is pegged at $40.1 million, suggesting a 59.8% increase from the same period last year. 

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SoundHound Positioned for Revenue Growth: Key Drivers Ahead 

SoundHound AI’s efforts to become a voice-first, agentic AI company will likely support its top line. The agentic AI market is projected to reach $93.2 billion by 2032 from $7.06 billion in 2025, at a CAGR of 44.6%, according to marketsandmarkets. To expand its enterprise agentic AI tools, SoundHound acquired AI firm Amelia and Interactions, a customer service AI company. 

Additionally, SoundHound holds a competitive advantage in data collection, which is essential for training AI. Over the past decade, it has accumulated extensive user interaction data, which can improve its Polaris AI model and fuel further revenue growth. The company has already raised its full-year revenue guidance to a range of $160-$178 million, according to investors.soundhound.com. 

Is Now the Right Time to Invest in SoundHound AI Stock? 

Growing interest from enterprise customers in SoundHound’s AI platform should support its revenue growth, offering a compelling reason for stakeholders to hold on to SOUN stock. 

However, the company is not yet profitable. In the second quarter, SoundHound reported a loss of $0.19 per share on a GAAP basis, while its non-GAAP loss was $0.03 per share. Profit margins have been declining due to higher customization expenses for new clients, increased cloud costs, and heavy reliance on low-margin restaurant revenues. As a result, SoundHound is expected to report a non-GAAP loss of $0.04 per share in the third quarter, as indicated by the Zacks Consensus Estimate. 

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Given this, new investors should consider holding off on investing in SOUN stock unless the company demonstrates signs of profitability and confirms that its business model is sustainable in the long term. 

SoundHound 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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