Stock-Split Watch: Is SoundHound AI Next?

The artificial intelligence (AI) revolution has just begun. The generative AI category alone could be worth $1.3 trillion by 2032, growing by more than 40% per year over the next decade.

As a pure-play AI business, SoundHound AI (NASDAQ: SOUN) has attracted the attention of many investors. Nvidia even briefly invested several million dollars into the company.

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This attention has caused shares to more than double in value over the last 12 months. Could a share split be around the corner? The answer might surprise you.

SoundHound AI might conduct a reverse stock split in 2025

Stock splits are often initiated when a company's share price becomes so high that it interferes with several business functions. For example, a company might want to acquire a competitor with a share swap, but a steep share price prevents the math from lining up. Other times, companies want to make buying a whole share more accessible to investors with fewer funds. There are also times in which a company simply wants to make its stock price look "cheaper" on paper through a stock split, even though share splits have minimal impact on intrinsic value.

Reverse stock splits, meanwhile, are often triggered by exchange regulations that require companies to maintain a minimum share price. Other times, companies simply want to increase the perception of the businesses value. This is the reason why SoundHound AI might conduct a reverse stock split in 2025.

NVDA data by YCharts

AI companies have seen their share prices soar recently. Over the past five years, AI component supplier Nvidia needed to conduct two stock splits that cumulatively reduced the absolute value of its stock price by 40 times. Without these splits, its current share price of $112 would be nearly $4,500!

SoundHound, meanwhile, still has a stock price below $10 per share, even after a strong run in 2024. To improve the perceived prestige of the business, don't be surprised if management opts for a reverse stock split this year, even though it won't change the underlying value of its business.

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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.