SoundHound Shares Sink Despite Surging Revenue. Is It Time to Buy the Stock on a Dip?

Shares of SoundHound AI (NASDAQ: SOUN) sank following the release of its third-quarter results, despite the voice artificial intelligence (AI) company seeing surging revenue in the quarter. However, the stock is still up about 200% on the year, as of this writing.

With the company reporting strong revenue growth, let's take a closer look at the company's most-recent results to see if this is a good opportunity to buy the stock on this dip.

Record revenue

Despite the drop in its stock price, SoundHound's Q3 results were actually quite strong. The company's revenue surged 89% year over year to $25.1 million. Adjusted earnings per share (EPS) came in at a loss of $0.04, which was a nice improvement from the $0.06 loss it reported a year ago. Those numbers topped the analyst consensus calling for revenue of $23 million and a loss of $0.07, as compiled by Factset.

It said that its cumulative subscriptions and bookings backlog, excluding its acquisition of Amelia, was double the year-ago period. It said that this number would be more than $1 billion, including Amelia, with an average duration of its contracts of around six years.

Within the automobile space, the company said it saw double-digit automotive unit growth in the quarter, as well as double-digit unit price expansion. It noted last year that it had a large point-in-time deal with a large customer but that it has more software-as-a-service (SaaS)-like revenue now, given its scale and greater diversification. It also said it won a deal with a new up-and-coming Middle Eastern electric vehicle manufacturer.

Within the restaurant vertical, SoundHound says it now has seven of the top 20 quick-service operators as customers. It continues to expand its drive-thru, phone orders, and employee assistance services. It also noted that it recently signed another large top-three global pizza chain.

With its recent acquisition of Amelia, the company also made inroads into a number of other verticals. During the quarter, it won or renewed deals in the telecom, healthcare, insurance, retail, and banking spaces. It also renewed deals with a branch of the U.S. military and a top multinational payment card services company.

SoundHound increased its full-year revenue outlooks for both 2024 and 2025. For 2024, it now expects revenue to come in between $82 million and $85 million, which is up from a prior outlook calling for revenue to exceed $80 million. Analysts were looking for revenue of $82.6 million.

For 2025, the company raised its guidance from an expectation of revenue to be more than $150 million to a range of $155 million to $170 million. The analyst consensus was for 2025 revenue of $152.1 million.

Image source: Getty Images.

Is it time to buy the dip?

By all accounts, SoundHound turned in a very good quarter and issued strong guidance. Given the stock's rise this year, however, investors perhaps wanted an even bigger guidance increase.

Yet the company sounded conservative in its forecast. It is still integrating the Amelia business, and it may look to jettison some lower-margin parts of its business. Amelia, though, is key for the company as it helps close some technology gaps and allows it to expand into more verticals.

Both the auto and restaurant industries remain ripe with growth opportunities, but SoundHound's ultimate goal appears to become an AI voice ecosystem across industries that can help organizations handle very industry specific, sophisticated interactions. The company is rolling out its new Polaris foundation model, which it says it built on billions of real conversations, but I would imagine that adding Amelia information to future generations will help its AI models even more.

From a valuation perspective, SoundHound trades at a price-to-sales (P/S) multiple of 15 times 2025 analyst estimates, which isn't particularly cheap.

SOUN PS Ratio (Forward 1y) data by YCharts

This company is still very much in its infancy with a huge opportunity in front of it. If the company can become the AI voice leader across industries, then the sky is the limit. And while its valuation isn't cheap, it also isn't outrageous given its growth.

Given where the company is in its lifecycle, I view it as a solid but speculative growth stock. As such, I think investors can take a small position in the stock on this pullback.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FactSet Research Systems. The Motley Fool has a disclosure policy.