One of the greatest hypergrowth stocks on the market is a terrible buy right now, but that should change in 2025. An overheated stock price should cool down in the next few months, while the underlying long-term success story remains.
As a result, I wouldn't touch shares of SoundHound AI (SOUN -9.01%) right now. At the same time, I'm prepared to pounce if and when the soaring stock price comes back to earth.
Here's why I'm excited about SoundHound AI's future, and what I need to see before buying the stock again.
The future sounds bright for SoundHound AI
SoundHound AI has a great future.
Voice commands are making their way into many industries. Drive-through ordering windows and phone-based menus are already popular examples, along with in-car infotainment systems and various consumer electronics devices. The usual tech giants all have some kind of voice interpretation technology going on, including Apple's Siri and Amazon's Alexa assistants.
Despite the presence of deep-pocketed household names, tiny SoundHound AI is winning voice-control contracts all over the place. The company already has long-term contracts with several automakers and fast-food chains. The roster is growing, and so is SoundHound AI's product portfolio. Just this month, for example, the company combined its two flagship technologies to enable food orders through your car stereo.
So this little company is going places and I can't wait to see the stock build value in the long run.
The stock is way too expensive
But I'm not a SoundHound AI buyer right now. Instead, I sold about half of my position in December, locking in the gains from a speculative price surge.
SoundHound AI quickly built a following in well-known meme stock channels online, setting the stock up for a skyrocketing price surge. The stated idea was to take advantage of a high short-seller interest, forcing bearish investors to cover their bets in a so-called short squeeze. The move appears to have peaked over the holidays, and the stock now trades roughly 47% below the top of that price spike.
I look forward to rebuilding my decimated SoundHound AI position, but it's still too early. The stock looked overpriced in the spring of 2024, when a small investment by Nvidia inspired rumors about a potential buyout or maybe an exclusive partnership. The rumors have not materialized and SoundHound AI's chart never even reached $9 in that bullish cycle.
Again, I have high hopes for SoundHound AI's business prospects in the long run. Still, many things can go wrong along the way and the stock has not yet earned the lofty valuations it saw in recent weeks. The price to sales ratio topped out at 110.5 on December 26. It has backed down to 73 times sales in January 13, but that's still too much.
SoundHound AI deserves a closer look if the stock price backs down to single-digit territory. I'm also monitoring how the company's business is developing. November's third-quarter report showed robust revenue growth and lower net losses, and management provided ambitious revenue guidance for the next two years.
Image source: Getty Images.
Ready to pounce: Here's what I'm looking for
So SoundHound AI's business performance is on track. The meme stock mania should fade out over the next couple of months. The bulk of the speculative action probably fell in December, as indicated by lower prices and thinner trading volume.
I'm ready to buy back the SoundHound AI shares I sold, but only if the price drop continues from about $13 per share to the $6-$7 range. Your mileage may vary, of course. It's hard to pin a proper valuation on small but fast-growing technology stocks like this one.
