Street039s – Earlybirds Invest

The tariffs are coming! The tariffs are coming!

To simplify what is a fairly complex issue, a tariff is a tax imposed on imported goods. The Trump administration has been using tariffs in an aggressive attempt to reshape global trade. This will have an impact on the economy and the stock market, but what that might be is hard to define today. Simply put, so many things are up in the air right now that nobody knows where the chips are going to fall.

A person with a shocked expression looking at a computer.

Image source: Getty Images.

That said, one concern is that higher tariffs will eventually be passed through to consumers. That would increase inflation, crimp consumption, and lead to lower earnings for corporate America. The flip side of that argument is that companies have increased prices so much in recent years that they can’t easily push higher costs onto consumers, and, thus, companies are likely to absorb the tariff hit. That would mean lower profit margins. Even here, however, Wall Street could still end up in the dumps as companies earn less and investors react to that negative news.

It seems like nothing good can come of this whole tariff thing. Except that, so far, the market hasn’t really paid much attention. The Vanguard S&P 500 ETF (VOO +0.00%) is up more than 10% so far in 2025. Yes, there was a brief market correction early in the year, but the S&P 500 index, which is what the Vanguard S&P 500 ETF tracks, seems to have shrugged that off, as it is again trading near all-time highs.

VOO data by YCharts.

Don’t get too caught up in the short term

Here’s the big takeaway from the tariff kerfuffle: It is shockingly hard to predict performance on Wall Street. Some people get market turns right once, but very few have been able to time the ups and downs with any consistency. For most investors, trying to jump in and out of the market — a practice known as market timing — is a mistake.

It is far better to buy and hold for the long term, perhaps including an exchange-traded fund (ETF) like Vanguard S&P 500 ETF in the mix. Indeed, focusing on a well-diversified portfolio is key, as it will help to soften the impact of the market’s gyrations over time. Which brings the story back to the potential for a bear market. Simply put, there will be one.

That’s not a prediction; it is just a statement of fact. Eventually, for some reason, investors will go from being bullish to being bearish. That’s just what market history tells us is the norm on Wall Street. Why it happens will be the topic of debate, and eventually, some common cause will be determined. Maybe it will be tariffs. It could also be geopolitical tensions, which are very high today. Or maybe artificial intelligence (AI) won’t turn out to be as profitable as investors expect, and that will lead the market lower, given that AI enthusiasm has helped lead the market higher.

Something will eventually give way, and there will be a bear market. Then, after some period of time, a bull market will arrive. It’s just how the market works. You should spend more of your time thinking about ways to save money and how to invest wisely. Investing wisely means taking into consideration the ever-present risk of a bear market.

Keep it simple and think long term

Far too often, investors get caught up in short-term market movements. The big picture is more important, including the sometimes erratic upward march of stocks over the long term. Sticking to an investment plan is hard, but it is likely to result in better long-term performance than trying to jump in and out of the market. Which is why a simple portfolio consisting of an S&P 500 index fund and a broadly diversified bond fund or ETF — say, in a 60% stock/40% bond breakdown — could be all you need.

^SPX data by YCharts.

Bonds help provide safety during market turmoil, and stocks provide growth over the long term. That combination will allow you to ride out bear markets without letting your emotions lead you into making investment mistakes (like selling everything you own and never investing again). Another option is just to buy a balanced mutual fund that does all the investing work for you. That leaves you to focus on saving money, which is where you will likely have the biggest impact on your long-term wealth, anyway.

If you do choose to buy individual stocks, which can be a lot of fun, don’t focus on the short term. Or to put it another way, think in decades, not days. When you do that, a bear market will probably end up looking like just a small hiccup. And it won’t really matter to you what precipitated the bear, anyway, because you will be too busy. You see, long-term investors often find their best investments during deep market declines.

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.

Interior of a vehicle showing icons related to SoundHound AI's Chat AI for Automotive product.

Image source: SoundHound AI.

SoundHound AI’s key numbers

Metric	Q1 2024	Q1 2025	Change
Revenue	$11.6 million	$29.1 million	151%
GAAP operating income	($28.5 million)	$128.1 million	Flipped from negative to positive
GAAP net income	($33 million)	$129.9 million	Flipped from negative to positive
Adjusted net income	($20.2 million)	($22.3 million)	Loss widened by 10%
GAAP earnings per share (EPS)	($0.12)	$0.31	Flipped from negative to positive
Adjusted EPS	($0.07)	($0.06)	Loss narrowed by 14%

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.