SoundHound AI Inc. (NASDAQ: SOUN) has disappointed its shareholders over the past six months, and there is little indication that this will change anytime soon.
While the California-based company cites artificial intelligence as a primary tailwind driving accelerated growth, several concerns may hinder the stock’s performance in the coming months.
Two major challenges include valuation and rising competition. Let’s explore each in detail.
SoundHound stock is not particularly cheap to own
SoundHound is currently trading at a trailing twelve-month price-to-sales ratio of over 30.
This is concerning, even though the Nasdaq-listed firm grew its revenue by an impressive 54% year-over-year in its latest reported quarter.
The reason for concern? Most stocks struggle to maintain a multiple above 10, and eventually, they tend to retreat.
Owning SOUN shares at such a premium valuation is increasingly risky, particularly given that the AI company has yet to turn a profit.
A net loss of $108 million over the past six months should prompt smart investors to consider alternative options.
The $1.74 billion company based in Santa Clara is expected to report its third-quarter financial results in the second week of November.
Consensus estimates project a loss of 8 cents per share, compared to a loss of 9 cents per share a year ago.
Therefore, SoundHound stock does not appear particularly attractive at this time, especially since the per-share loss is not expected to improve materially shortly.
Additionally, SOUN shares do not offer a dividend, which would make them more appealing.
Rising competition could weigh on SOUN’s share price
Adding to SoundHound’s challenges is the rising competition in the voice AI assistant market—not just from startups, but also from major players like Alphabet Inc.
Google has a well-established Cloud Speech-to-Text offering that Wendy’s recently agreed to use for automating its drive-thrus.
This deal puts Alphabet in direct competition with SOUN.
This situation is concerning for SoundHound investors, as Google boasts one of the best infrastructures and R&D departments for expanding its footprint in artificial intelligence.
Furthermore, with the rapid growth in AI, competition for SOUN is expected to intensify moving forward.
Despite these challenges, Wall Street still rates SoundHound stock as a “buy.” Analysts currently have an average price target of $7.79, indicating a potential upside of 60% from its current price.
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