Why SoundHound AI Stock Skyrocketed 113.1% in December but Is Plummeting in 2025

SoundHound AI (NASDAQ: SOUN) stock posted a month of explosive gains across December's trading. The conversational artificial intelligence (AI) company's share price closed out last month up 113.1%, according to data from S&P Global Market Intelligence.

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SOUN data by YCharts

SoundHound AI closed out 2024 with some of the stock market's most impressive gains, posting a share increase of 836% across the stretch. The company finished the year with another month of growth thanks to new contract wins and bullish coverage from analysts.

Analysts raved about SoundHound AI stock in December

Wedbush's Daniel Ives kicked off a massive bullish run for the company with a note that radically updated the firm's outlook on the stock. While Ives maintained a buy rating on the stock, he raised his one-year price target from $10 per share to $22 per share. Ives thinks SoundHound remains in the early stages of capitalizing on large long-term growth opportunities in the enterprise market.

SoundHound was also named as a leader in conversational AI in a report from Frost & Sullivan. Thanks to the company's acquisition Frost & Sullivan thinks SoundHound is positioned as an early leader in the conversational AI market for healthcare. Thus far, the majority of SoundHound's revenue has come from automotive applications and the restaurant industry.

The company's share price also gained ground following the participation of CFO Nitesh Sharan and CEO Keyvan Mohajer in multiple conferences. SoundHound AI now has a market capitalization of roughly $6.2 billion and is valued at roughly 38 times this year's expected sales. While the company does have a highly growth-dependent valuation, it has been serving up rapid sales expansion and actually anticipates that growth will accelerate in the near term.

Why is SoundHound AI stock sinking in 2025?

SoundHound AI stock has started off 2025 with some significant pullbacks. As of this writing, the company's share price is down roughly 25.5% year to date.

SoundHound AI's share price is losing ground in the face of macroeconomic risk factors. Recent jobs data from the Bureau of Labor Statistics suggests that the economy could still be running hotter than expected, and reports have suggested that President-elect Donald Trump is considering declaring a national economic emergency in order to implement tariffs after entering office. Investors may also have been expecting SoundHound to announce more at this year's CES trade show.

If SoundHound continues on its current growth trajectory and manages to improve its margins as it scales, the company could still have significant upside. On the other hand, the company's gross margin has slipped over the last year in conjunction with its sales growth. SoundHound AI is a high-risk, high-reward play in the AI category. With a massive market opportunity still ahead, the company has pathways to growing into and exceeding its current valuation. But investors should move forward with the understanding that shares could face significant downside pressures if growth comes in below Wall Street's expectations or progress on the margins front fails to materialize.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.