What Happened?
Shares of voice AI technology company SoundHound AI (NASDAQ: SOUN) fell 4.8% in the afternoon session after investor sentiment soured on the company's valuation and lack of a clear path to profitability, compounded by a recent analyst downgrade.
The decline appears driven by mounting concerns over the company's valuation relative to its financial performance. Despite strong customer acquisition and increased revenue guidance for 2025, SoundHound AI remains unprofitable with widening losses. One analysis noted the stock trades at a premium, with its AI-driven optimism potentially fully priced in. This fundamental disconnect was highlighted in its last quarterly earnings report, where the company missed consensus estimates for earnings per share.
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What Is The Market Telling Us
SoundHound AI’s shares are extremely volatile and have had 89 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 4 days ago when the stock dropped 3.3% on the news that markets pulled back as a hotter-than-expected wholesale inflation report for July dampened hopes for a Federal Reserve interest rate cut. The U.S. Producer Price Index (PPI), a key measure of wholesale inflation, rose 0.9% month-over-month in July, far exceeding the 0.2% increase that economists had predicted. Annually, prices at the wholesale level jumped 3.3%, also surpassing the 2.5% forecast. This hotter-than-expected data has poured cold water on widespread expectations for an interest rate cut from the Federal Reserve next month. Persistent inflation makes it less likely for the central bank to ease monetary policy. Sectors with high-growth stocks, such as SaaS, are particularly sensitive to interest rate changes, as the prospect of higher rates for longer can diminish the present value of their future earnings, leading to a decline in stock prices.
SoundHound AI is down 26.5% since the beginning of the year, and at $14.83 per share, it is trading 38.8% below its 52-week high of $24.23 from December 2024. Investors who bought $1,000 worth of SoundHound AI’s shares at the IPO in April 2022 would now be looking at an investment worth $1,977.
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