SoundHound AI (SOUN -2.78%) stock recorded huge gains across August’s trading and has kept rallying. The company’s share price rose 26% last month.

SoundHound’s big gains in August stemmed from a blockbuster earnings report. While the company’s valuation saw some pullbacks in post-earnings trading in response to concerns about valuations for artificial intelligence (AI) stocks, bullish momentum resumed as the month progressed.

SoundHound AI soared on strong Q2 results

SoundHound AI published its second-quarter report after the market closed on Aug. 7, and the conversational AI specialist delivered results that crushed the market’s expectations. The company reported a non-GAAP (generally accepted accounting principles) adjusted loss of $0.03 per share on sales of $42.7 million in the period, beating the average Wall Street analyst estimate’s call for a per-share loss of $0.05 on sales of approximately $32.9 million.

SoundHound’s sales increased roughly 217% year over year in the second quarter. While the company’s adjusted gross margin fell to 58.4% from 66.5% in the prior-year period, the big sales beat in the quarter was more than enough to offset the margin decline when it came to shaping movement for the stock. Following the Q2 release, SoundHound AI received ratings upgrades and price-target increases from multiple analysts.

SoundHound AI did see some valuation pullbacks in post-earnings trading last month, but it reclaimed its big gains as the month progressed. Sell-offs in the period stemmed from a report from the Massachusetts Institute of Technology (MIT) stating that 95% of the businesses it studied had yet to achieve profitability on their generative AI integrations. Reports showing that inflation was coming in hotter than expected and could accelerate in the consumer side of the economy also played a role in pullbacks.

What’s next for SoundHound AI?

SoundHound AI stock has kept surging in September’s trading, with the stock now up 14.3% in the month so far. Bullish momentum for tech stocks, in conjunction with expectations that the Federal Reserve will cut interest rates later this month, has helped facilitate gains for the company’s share price.

On the heels of its strong Q2 results, SoundHound AI raised its full-year performance outlook. The company is now targeting annual revenue between $160 million and $178 million and said that it expects strong growth to continue following the second quarter. If the business were to hit the midpoint of management’s sales target, it would mean delivering annual growth of 99.5% compared to the $84.7 million in sales recorded last year. For comparison, the business recorded annual revenue growth of 85% in 2024.

SoundHound’s business is scaling rapidly, and the company has been managing to expand its sales footprint in a relatively cost-effective fashion. While the stock still looks like a high-risk play, trading at approximately 36.4 times this year’s expected sales, the company’s recent sales momentum suggests shares could still offer upside.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

SoundHound AI (SOUN 7.30%) is a popular AI pick because it’s relatively small and doing remarkably well, which could translate to massive upside over the next few years. This is an attractive combination, and some are wondering if buying it today could set investors up for life.

This is a tall task for any stock, but with massive tailwinds surrounding AI and its buildout, is SoundHound AI a viable candidate? Let’s find out.

SoundHound AI’s product is being rolled out worldwide

SoundHound AI does exactly what it sounds like: It combines AI technology with audio recognition. This isn’t a new concept; digital assistants like Siri and Alexa have been available for years. The problem is that these models leave a lot to be desired in terms of performance, but SoundHound AI far exceeds them.

SoundHound AI’s audio recognition technology incorporates generative AI and can potentially replace humans in various roles, such as taking drive-thru orders or assisting individuals with banking transactions over the phone. Another way SoundHound AI is gaining popularity is through its integration into automated digital assistants. While we haven’t seen this rollout in the U.S. yet, it’s becoming available in other parts of the world, such as Japan and Europe. Eventually, it will reach the U.S. and could continue to be a driving factor in SoundHound AI’s revenue stream.

With SoundHound AI having the potential to disrupt a ton of industries by automating human interactions, the sky is the limit for SoundHound AI’s stock. This has shown up in its revenue growth, as SoundHound AI delivered impressive quarters recently.

In Q2, SoundHound AI blew revenue expectations out of the water. It reported revenue growth of 217% to a company-record $42.7 million. This illustrates the small size of SoundHound AI’s business, as well as its rapid growth rate. As we start to see more practical deployments of SoundHound AI’s technology, this number could quickly expand, making it a must-own stock.

But has the market already priced in its success?

SoundHound AI isn’t a cheap stock

SoundHound AI is a long way from profitability, which is understandable given its rapid growth and the importance of the industry it is targeting. As a result, the best way to value the business is by using the price-to-sales (P/S) ratio. At 38 times sales, SoundHound AI is an expensive stock.

SOUN PS Ratio data by YCharts

Most software companies trade at a multiple of 10 to 20 times sales, so this represents a significant premium to pay. Then again, most companies aren’t tripling their revenue year over year, so SoundHound AI’s valuation makes more sense in that context. Management expects FY 2025’s revenue to be $169 million, which would value the stock at 31 times full-year estimated sales. That’s still expensive, but it aligns with some of the more premium-priced software stocks.

Essentially, the stock has priced in all of 2025’s growth, but the question is, what comes next? CFO Nitesh Sharan had some commentary on that:

The numbers we’re talking about this year will pale in comparison to the numbers we’ll talk about for next year and the year after that. And we’re certainly on that pathway. And I think historically, our growth organically of 50% plus, and now with other acquisitions going even double of that like that — that’s a pace that we anticipate for the foreseeable future.

A 50% growth rate for the foreseeable future is impressive and would certainly lead to a massive outperformer in the market. It also justifies SoundHound AI’s current price tag. Still, this growth rate and price tag don’t combine to create a stock that could set you up for life. It will likely be a successful investment if bought today, but there are still risks involved with the business. As a result, SoundHound AI makes for a smart addition to a portfolio, but with a proper weighting that adjusts for the risks of investing in a high-growth business.

Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

I’ve been standoffish on SoundHound AI (SOUN 2.70%) for almost a year now. I love what the company is doing and see tremendous long-term value in the stock, but the share price has been way too rich since a meme stock surge in December 2024.

The worst of last year’s overheating has subsided, and SoundHound AI keeps making strides in its business results. Is the stock a good investment at this point?

Let’s take a look.

SoundHound AI by the numbers

I can’t ignore one simple fact: This is still an expensive stock.

SoundHound AI trades at a lofty 38 times trailing sales, and its profits are consistently negative. I mean, the company reported a $78 million operating loss in the second quarter of 2025, based on $42.7 million in top-line revenues.

Some of that financial pain comes from noncash accounting adjustments, but there’s some real substance to other line items. The cost of revenues rose from $5 million to $26 million. Sales and marketing expenses nearly tripled.

As a result, SoundHound AI is burning actual cash, too. Operating cash flow was -$18.5 million. So the company is keeping the lights on (and building a robust cash reserve, in all fairness) by selling new shares while they’re pricey.

And that’s not good news for existing shareholders such as yours truly. The diluted share count rose by 21% over the last year, undermining the effective stock returns by a similar percentage.

Can SoundHound AI’s upside outweigh the crushing downsides?

So far, not so good. SoundHound AI’s stock trades at a nosebleed-inducing price despite weak revenues and deep bottom-line losses. What’s the upside to this artificial intelligence (AI) stock, then?

SoundHound AI is growing at a blistering pace. The skyrocketing administrative expenses are a necessary increase, since second-quarter revenues more than tripled year over year. And thanks to the cash-boosting combination of high share prices and high-volume sales of new stock, SoundHound AI can afford partnerships, acquisitions, and product development projects that used to be out of reach.

Moreover, most of the soaring sales are tied to long-term service deals or subscription-style contracts. The company used to report order bookings in every quarterly business update, last reported at $1.2 billion of unfilled long-term contracts by the end of 2024. Due to volatile shifts in this metric, management will only report it at the end of each fiscal year in the future.

But this is the meat and potatoes of SoundHound AI’s revenue growth recipe — a billion-dollar balance of subscriptions that will convert into actual revenues over a multiyear period. Including this incoming pile of future revenues in your market-value calculations makes SoundHound AI’s stock more palatable. With a $5 billion market cap today, the stock trades at approximately 4.2 times the latest backlog balance.

Should you buy, sell, or hold SoundHound AI today?

SoundHound AI’s business is growing by leaps and bounds. Its AI-driven voice controls are useful for carmakers, drive-thru window services, and phone-based menu systems, just to name a few target markets. I can imagine this company evolving into a tech giant with a large market footprint — but it could take many years to reach that pinnacle.

Many things could go wrong in the meantime. The heavy stock dilution is one troublesome concern. And SoundHound AI’s technology is today’s top of the line, but what if someone else develops an equal or even stronger alternative? That all-important order backlog could dry up if this hypothetical rival starts snagging every available business opportunity.

So it’s a risky investment today, and I don’t think the market makers are accounting for these potential downsides in SoundHound AI’s current valuation. I’m not selling my existing shares, but I’m not reaching for the “buy” button either. At this point, SoundHound AI falls right in the middle of the classic buy, hold, or sell ratings scale. Your mileage may vary, depending on your appetite for unprofitable sales growth.

Anders Bylund has positions in SoundHound AI. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

SoundHound AI (SOUN -8.16%) stock declined 7.8% on Friday following the conversational artificial intelligence (AI) technology provider’s release of its first-quarter 2025 report on the prior afternoon. The drop is largely attributable to the quarter’s revenue falling short of Wall Street’s expectations. The bottom-line result was in line with the analyst consensus estimate.

SoundHound AI’s key numbers

Investors should focus on the adjusted numbers, which exclude one-time items. Q1 2025 GAAP numbers include an accounting-only (noncash) gain related to acquisitions. Data source: SoundHound AI. GAAP = generally accepted accounting principles.

Acquisitions over the last year have helped revenue growth year over year, though we do not know to what degree. In other words, we don’t know the organic revenue growth rate. On the positive side, these acquisitions have enabled the company to better diversify its customer base on both individual and industry bases. No single customer accounted for more than 10% of revenue in the quarter.

Investors should focus on the adjusted numbers, which exclude one-time items. Wall Street was looking for an adjusted loss of $0.06 per share on revenue of $30.4 million, so SoundHound met the bottom-line expectation but missed the top-line one.

SoundHound used $19.2 million in cash to run its operation, slightly better than its operating cash flow of negative $21.9 million in the year-ago period. Free cash flow was negative $19.3 million, compared with negative $25.7 million in the year-ago period. The company ended the quarter with cash and cash equivalents of $246 million and no long-term debt. At the current cash burn rate, SoundHound’s cash will last about 12.7 quarters, or just over three years.

What the CEO had to say

CEO Keyvan Mohajer’s statement in the earnings release:

SoundHound continues to extend its reach and create new possibilities for real world AI applications. The release of our complete AI agent platform delivers full, voice-enabled Agentic AI for customers across all industries. At the same time, our bold growth initiatives are paying dividends, and we’re realizing significant cross-sell and upsell opportunities following our acquisitions.

SoundHound AI’s 2025 guidance

On the earnings call, CFO Nitesh Sharan reaffirmed the company’s prior guidance as follows:

• For full-year 2025, revenue is expected to range from $157 million to $177 million. This would equate to annual growth of 85% to 90%. Annual growth will be helped considerably by acquisitions made in the last year, particularly the $80 million Amelia acquisition.
• By year-end 2025, the company expects to achieve positive adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization).

SoundHound is worth watching, but the stock is not a buy

SoundHound AI — the company — is worth watching for the simple reason that the voice artificial intelligence (AI) market is poised to be massive. That said, SoundHound AI — the stock — has been much too hyped by the financial press and on social media over the last year-plus, in my view. It’s not the company’s fault, however, that its stock price got ahead of itself due to all the hype.

Sure, the company has potential — a lot. But I maintain a healthy skepticism about its ability to be a long-term winner in the AI-powered voice tech space. (Unlike unhealthy skepticism, healthy skepticism has been said to be the basis for critical thinking and involves remaining open-minded.) Indeed, I remain open-minded, especially because it’s relatively early innings in the conversational AI space.

Before I get into my concerns, a notable positive is that SoundHound’s cash will last about 12.7 quarters, or just over three years, at its current cash burn rate.

What are my main concerns?

The first has to do with the company growing through a large number of acquisitions. Growth strategies that rely significantly on acquisitions are challenging to pull off well, as they involve integrating often-diverse corporate cultures.

Moreover — and this is the main reason I do not like these growth strategies — they can obscure a company’s lack of robust organic (internal) revenue growth and issues with its own core products and tech. It’s simply not possible for investors to accurately gauge such a company’s performance unless it regularly reveals its organic growth rates (growth excluding that from contributions made by significant acquisitions made within the past year).

The second main issue involves profitability — or, more accurately, the lack thereof. Granted, it’s not unusual for newly public tech companies to prioritize revenue growth over achieving profitability. But the lack of progress toward profitability is just one concern. My other concern is how things have played out relative to profitability guidance.

The company initially guided for positive adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) in the fourth quarter of 2023. Five quarters later, its adjusted EBITDA is negative $22.2 million. When that milestone wasn’t hit, it guided for achieving positive EBITDA for full-year 2025.

Currently, guidance includes achieving positive adjusted EBITDA by the end of the year (which likely means in the fourth quarter). One question that comes to mind is whether the current profitability outlook is possible now only because of the $80 million Amelia acquisition made in August 2024.

Lastly, competition in conversational AI applications is already tough, as the players in the auto end-market, in particular, include big tech companies with tons of cash. And competition promises to heat up further. Whether SoundHound has enough competitive advantages to grow revenue at scale and generate solid profits remains to be seen.

Along with the big techs, investors should watch Cerence (CRNC 5.58%) in the voice AI space. In October 2019, this company spun off from Nuance Communications (which has since been acquired by Microsoft). Cerence has had execution issues, but with a high-profile CEO (former Intel CEO Brian Krzanich) installed last fall, the company’s performance could improve.

Again, I’m remaining open-minded about SoundHound AI, and so should investors.

Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.