Stocks within the artificial intelligence (AI) realm, epitomized by Nvidia (NVDA), have been on a remarkable winning streak over the past 15 months. Amidst Nvidia’s dazzling performance and expanding profit margins, other AI-driven stocks have soared to astronomical valuations.
One prime example is SoundHound AI (SOUN), a tech stock that has surged by 68% in the last year and an astounding 136% in 2024 alone.
Today, we delve into the viewpoint of a Wall Street analyst who believes that SoundHound AI stock is currently overvalued.
A Close Look at SoundHound AI
SoundHound AI, boasting a market capitalization of $1.64 billion, plays in the conversational intelligence sector, offering voice AI solutions to enterprises. The company’s voice AI technology, supported by proprietary systems, caters to creators across various industries like automotive, TV, and IoT.
SoundHound aims to revolutionize consumer-facing sectors by leveraging AI-driven products such as smart answering, smart ordering, and the innovative dynamic drive-thru feature, a multimodal food ordering solution.
An Uphill Battle for SoundHound Stock?
Despite its modest size, SoundHound AI boasts an impressive clientele that includes tech juggernauts like Netflix (NFLX) and Mastercard (MA). Additionally, Nvidia has made a minor investment in SoundHound, holding less than a 1% stake in the company.
On the flip side, SoundHound AI lacks significant competitive advantages and risks losing market share to industry giants like Apple (AAPL), Amazon (AMZN), Alphabet (GOOG)(GOOGL), and Microsoft (MSFT), all of whom are actively developing their voice recognition solutions.
Like many growth-oriented firms, SoundHound AI currently operates at a loss, closing Q1 with $226 million in cash. While Q1 revenues surged by 73% to $11.59 million, the company faced an operating loss of $28.52 million, marking a 13% increase from the previous year.
Analysts project that SoundHound AI will narrow its losses to $0.22 per share by 2025, down from $0.40 per share in 2023. Given its ongoing cash burn rate, the company could sustain losses for another six quarters before necessitating additional capital, potentially diluting shareholder value.
Hence, it appears likely that SoundHound AI will seek equity financing within the next year, having initially gone public with 200 million outstanding shares, a figure that has now swelled to nearly 330 million.
KM Capital Expresses Bearish Sentiments on SOUN Stock
One notable naysayer is KM Capital, an investment entity that holds a pessimistic view on SOUN stock. According to KM Capital, SoundHound AI is currently overpriced as it commands a lofty forward price-to-sales multiple of 23x.
In a daring move, KM Capital suggests that the fair price for the tech stock stands at $1.20, a staggering 76% drop from its recent closing value. In a statement, KM Capital contended, “SoundHound is indeed a frontrunner in a promising field, and its strong Q1 results, coupled with management’s optimistic projections for 2024 and 2025, cannot be overlooked. Nonetheless, even in my most upbeat discounted cash flow analysis, it is evident that the stock is significantly overvalued.”
On the flip side, KM warns that an acquisition bid for SoundHound AI by a tech behemoth could trigger a near-term hike in share prices.
This bearish stance contrasts with the broader sentiment on Wall Street for SOUN. Out of the six analysts covering SOUN stock, four advocate a “strong buy,” while two recommend a “hold,” culminating in a consensus rating of “moderate buy.”
The average target price for SoundHound AI stock is $7.17, indicating a potential 41.6% surge from its current level.