SoundHound AI Shares Sink, but With Revenue Surging, Is Now the Time to Buy the Stock?

Despite reporting soaring revenue in the first quarter, SoundHound AI (NASDAQ: SOUN) saw its shares sink as the number came in below analyst expectations.

To say SoundHound's stock has been volatile this past year is an understatement. The company has seen its share price cut 44% in 2025, but it's still up around 115% over the past year, as of this writing.

With revenue surging and the stock still down, is now the time to jump in?

Revenue skyrockets

Rapid sales growth was once again on full display in the first quarter, with revenue skyrocketing 151% to $29.1 million. The company's adjusted net loss improved slightly from $0.07 per share to $0.06 per share. Analysts were looking for a loss of $0.06 on revenue of $30.4 million, as compiled by FactSet.

Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) showed a loss of $22.2 million compared to $15.4 million a year ago. It had an operating cash outflow of $19.2 million in the quarter.

Its gross margin continues to remain under pressure at just 36.5%, which is low for a company that generates revenue through royalties and subscriptions, as SoundHound does.

When its software is installed, it gets royalty payments based on measurements like usage, unit sales, or transactions. The business' platform is also sold by subscriptions for service-based businesses.

SoundHound AI is looking to get back to gross margins north of 70% in the medium term. The company last had gross margins above 70% in the fourth quarter of 2023, when they reached 77%. However, since its acquisition of Amelia AI in August of 2024 for $80 million, gross margins have come under a lot of pressure.

The company bought Amelia to help get into new market verticals. Amelia is especially strong in the healthcare, financial services, and retail industries, especially in the area of customer support. This is complimentary to SoundHound's strength in the automobile and restaurant industries.

The acquisition also helped fill some technology gaps, and is meant to help SoundHound become a complete commerce voice ecosystem that can handle sophisticated interactions across industries.

Some of the gross margin decline is due to the amortization of intangible assets that the company took on with its Amelia acquisition. This is a noncash expense, and why its adjusted gross margin of 50.8% is much higher than its GAAP adjusted gross margins of 36.5%. However, Amelia's business also came with some lower-margin offerings that management is looking to improve as contracts roll off.

Image source: Getty Images

In its automotive segment, SoundHound is set to take advantage of carmakers' shift away from partnering with big tech companies for their in-vehicle voice-recognition. Management said it was in active talks with several vehicle companies on this issue.

It said the situation is similar with its restaurant platform, where companies are looking to move away from cumbersome legacy answering systems to artificial intelligence (AI) ordering solutions, with its product gaining momentum.

The company just launched its Amelia 7.0, which will allow customers to deploy fleets of AI agents that can work with each other to perform tasks without the need for human intervention. It said it is the only agentic AI platform that combines enterprise-ready AI agents with world-class voice AI.

Management maintained its full-year forecast calling for revenue between $157 million and $177 million. It's the first time the company has not increased its guidance when reporting earnings. It expects to reach adjusted EBITDA profitability by the end of 2025.

Should investors buy the dip?

SoundHound is growing revenue rapidly but still has work ahead of it. Gross margins must be returned to their prior higher levels, while it also needs to become EBITDA and cash flow positive.

The company has a big potential opportunity as it looks to merge voice and agentic AI, because there are an enormous number of applications across industries for this technology. If it can emerge as a leader in this area, the upside is tremendous.

SoundHound trades at a price-to-sales (P/S) multiple of 35 times the consensus analyst estimate for 2025. Given its revenue hypergrowth, that wouldn't be a completely outrageous valuation if it had typically high software gross margins. But with its adjusted gross margins in the 50% range, that makes the stock more pricey.

Overall, SoundHound AI has an attractive opportunity, but its valuation and early stage nature make it a highly speculative investment at this time.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FactSet Research Systems. The Motley Fool has a disclosure policy.