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In 2025, SoundHound AI (SOUN -10.33%) has faced significant challenges in the stock market, with its shares plummeting by 45% year to date. The downward trend was exacerbated on February 14, when a recent filing from Nvidia with the Securities and Exchange Commission indicated that the technology behemoth had divested its entire equity stake in SoundHound during the previous quarter.
Despite these setbacks, SoundHound operates within a specialized area that has the potential for substantial growth. Investors are now faced with the question of whether this downturn signifies a strategic buying opportunity or a warning to avoid the stock altogether.
Nvidia’s Departure
Earlier in 2024, SoundHound’s stock saw a positive spike when it was disclosed that Nvidia had acquired a stake of 1.7 million shares. This move was interpreted by the market as a vote of confidence from Nvidia, suggesting possible collaboration or acquisition prospects in the future.
The two companies cooperated on the development of SoundHound ChatAI, an in-car voice assistant leveraging generative AI capabilities without needing internet access. However, aside from this project, their partnerships appeared limited.
The recent 13F filing revealing Nvidia’s exit from not only SoundHound but also from several other smaller AI firms, including Nano-X Imaging and Serve Robotics, sparked unease among investors. Some are now speculating that Nvidia’s departure implies insider knowledge about SoundHound’s challenges.
However, these fears may be excessive. Nvidia’s stake in SoundHound constituted less than 1% of the company’s outstanding shares, suggesting that they likely had no inside information beyond what was publicly available. The speed of Nvidia’s withdrawal appears to indicate that their previous investment was perhaps a tactical allocation of cash rather than a long-term commitment.
Understanding SoundHound’s Investment Rationale
Investors who are considering SoundHound now might be drawn to the synergistic potential between voice recognition and the large language models (LLMs) that drive applications like ChatGPT. This intersection appears to represent a prominent opportunity within the AI landscape. SoundHound has already established various partnerships with automobile manufacturers for in-car voice assistant systems and has seen restaurants trialing its software for efficient drive-thru operations. Should the technology prove effective, it could provide significant cost reductions for businesses by minimizing labor needs in certain roles.
In its third quarter, SoundHound reported a remarkable 89% growth in revenue year over year, reaching $25 million. This growth is attributed to the company attracting clients across diverse sectors. Notably, customer diversification improved significantly, with only 12% of revenue deriving from its largest client, compared to 72% in the previous year. However, it is important to note that SoundHound’s growth has involved several acquisitions, including the recent purchase of Allset, a food ordering marketplace.
Despite the promising revenue figures, concerns linger regarding the company’s financial health. Operating losses surged to $33.8 million in Q3, indicating that SoundHound does not yet have a clear trajectory toward profitability.
Is SoundHound a Long-Term Investment?
SoundHound currently benefits from being an early player in a potentially vast market. Nevertheless, Nvidia’s divestment might not necessarily reflect the negative sentiment the market assumes. With the stock’s recent decline, it might not present a true buying opportunity at this juncture.
The current strategy of relying heavily on acquisitions to drive growth may cloud the company’s potential for organic expansion. Coupled with continued financial losses, cautious investors might want to await clearer evidence of SoundHound’s ability to capitalize on its AI prospects profitably before committing to the stock.
Source
www.fool.com