Stocks navigating the artificial intelligence (AI) realm, spearheaded by Nvidia (NVDA), have surged over the past 15 months. Nvidia’s meteoric rise, fueled by its remarkable growth and expanding profit margins, has dazzled both analysts and investors alike. However, amidst this AI exuberance, several stocks bask in the glow of lofty valuations.
One such contender is SoundHound AI (SOUN), a tech stock that has soared by 68% over the last year and an astounding 136% in the lone year of 2024.
What lies beneath these buoyant figures that leads at least one discerning Wall Street analyst to perceive SoundHound AI stock as overpriced?
Diving into the World of Soundhound AI
With a market capitalization of $1.64 billion, SoundHound AI operates in the domain of conversational intelligence, delivering voice AI solutions to assorted businesses. Employing proprietary technology, its voice AI capabilities are accessible in multiple languages to creators across diverse sectors such as automotive, TV, and IoT (Internet of Things).
SoundHound sets its sights on catering to consumer-driven industries through AI-infused products like smart answering, smart ordering, and the dynamic drive-thru – a multi-faceted food ordering solution.
Clashing Cymbals for SoundHound Stock
Despite its modest stature, SoundHound AI boasts an impressive clientele, including heavyweights like Netflix (NFLX) and Mastercard (MA). Additionally, Nvidia has also dipped its toes in SoundHound’s waters by acquiring a stake, albeit a slender one, of less than 1% in the firm.
Conversely, SoundHound AI lacks sturdy competitive barriers and faces the looming risk of surrendering market share to tech titans such as Apple (AAPL), Amazon (AMZN), Alphabet (GOOG) (GOOGL), and Microsoft (MSFT), all spearheading their voice recognition software initiatives.
Leveraging historical context, much like other tech growth entities, SoundHound AI operates at a loss. While it witnessed a 73% upsurge in sales to $11.59 million in Q1, its operational losses hit $28.52 million, representing a 13% escalation from the prior-year’s $25.2 million loss.
Analysts foresee SoundHound AI narrowing its losses per share to $0.22 in 2025, a marked improvement from the $0.40 per share loss in 2023. Should the current cash burn rate persist, SoundHound AI could sustain losses for six more quarters before necessitating additional capital infusion, potentially diluting shareholder value.
Thus, it appears inevitable that SoundHound AI will seek equity capital within the ensuing 12 months. Since going public two years ago with 200 million outstanding shares, this figure has ballooned to nearly 330 million today.
KM Capital Frowns Upon SOUN Stock
KM Capital stands as a lone pessimist amidst a sea of optimism, expressing bearish sentiments towards SOUN stock. According to KM Capital, SoundHound AI’s current valuation stands at an inflated forward price-to-sales multiple of 23x. In fact, KM Capital contends that the stock’s rightful value hovers around $1.20, representing a stark 76% drop from Friday’s closing price.
In an investor communique, KM Capital remarked, “SoundHound paves the way in a promising sector, evident from its robust Q1 earnings and upbeat outlook for 2024 and 2025. Nevertheless, even my exceptionally sanguine discounted cash flow model reveals the stock’s bloated valuation.”
On the flip side, KM Capital cautions that a potential acquisition bid from a tech heavyweight could trigger a brief uptick in share prices.
This disenchanting viewpoint stands in contrast to prevalent sentiment on Wall Street. Among the six analysts monitoring SOUN stock, four advocate a “strong buy” stance, while two opt for “hold,” culminating in a consensus endorsement of a “moderate buy.”
The average target price for SoundHound AI stock stands at $7.17, implying a potential 41.6% rally from current levels.