Here’s why the SoundHound stock price has nosedived

By:
on Jun 19, 2024
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  • SoundHound AI stock price has plunged hard in the past three months.
  • There are serious questions about the company’s valuation.
  • Investors are also concerned about its revenue growth and profitability.

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SoundHound AI (NASDAQ: SOUN) stock price has been left in the dust by Nvidia and the broader market in the past three months. After peaking at over $10, it has crashed by more than 60% to the current $4. It has also tumbled to its lowest level since April 25th. 

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Left behind by Nvidia

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SoundHound AI, a company that was formed in 2005, came into the spotlight earlier this year after Nvidia invested in the firm. As a result, the stock surged to a record high as the artificial intelligence hype continued.

Recently, however, SoundHound AI stock has diverged from the broader market and Nvidia. The main indices like the S&P 500 and Nasdaq 100 indices have soared to a record high while Nvidia has become the biggest company in the world. 

SoundHound’s stock has also crashed even after the company reported strong results and improved its balance sheet. It recently paid $100 million of its debt in full, a move that will save it $55 million of interest and fees. It also freed about $14 million in restricted cash and maintained $180 million in cash with no debt.

The most recent financial results showed that SoundHound’s revenue jumped by 73% to $11.6 million, helped by the strong demand across industries like automotive and restaurant. Its automobile business counts companies like Kia, Hyundai, and Honda. 

SoundHound is also used by companies like Casey’s, Oracle, Square, and Toast. The management hopes that this trajectory will continue.

The key challenge for SoundHound is that its stock is highly overvalued considering that its annual revenue in 2023 stood at $45 million. Analysts expect that the revenue will be $70.6 million this year and $103 million in 2025 as demand for generative AI rises. 

Still, these numbers are significantly small considering that the company has a market cap of over $1.3 billion and is not expected to make a profit any time soon. Still, as we have seen with Nvidia, the company could justify its valuation if it continues growing. 

Analysts have mixed feelings about SoundHound. Cantor Fitzgerald’s analysts slashed their rating in March and then boosted the estimate in April. Wedbush and HC Wainwright have upgraded it to a buy. The average estimate for the stock is $9.50, higher than the current $4. This means that analysts expect that it could soar by 131%.

SoundHound stock price analysis

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SoundHound stock

SOUN chart by TradingView

My last SoundHound stock forecast did not work out well. At the time, I predicted that the stock would rebound to $1, and has now crashed to $4.5. The stock has crashed below the 50-day and 100-day Exponential Moving Averages (EMA).

It has also plunged below the crucial support level at $5.09, its highest swing on July 9th last year. The Relative Strength Index (RSI) has moved below the neutral point. Therefore, the stock will likely continue falling as sellers target the key support at $3.52, its lowest swing in April. In the longer term, the stock will likely rebound as the AI hype continues.

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