Why SoundHound AI Stock Is Sinking Today

SoundHound AI (NASDAQ: SOUN) stock is seeing a significant pullback in Friday's trading. The company's share price was down 7.3% as of 11 a.m. ET amid a 1.4% decline for the S&P 500 index and a 1.7% pullback for the Nasdaq Composite index.

SoundHound AI stock is getting hit hard today following the latest U.S. jobs report. While the report showed that more jobs were added last month than broadly expected, this is actually a bearish development because it makes it less likely that the Federal Reserve will cut interest rates.

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SoundHound AI sinks on December jobs data

The latest data shows that 256,000 net jobs were added in December, coming in far ahead of the average economist forecast for 155,000 jobs added in the period. In conjunction with the report, the yield on 10-year U.S. Treasury bonds rose to its highest level in more than a year.

While adding new jobs can be considered a good thing in some respects, the development doesn't exist in a vacuum. Progress has been made on combatting inflation, but there are still concerns that the economy is running hot and upward pricing pressures could return and destabilize markets. With today's jobs report, investors received a decidedly bearish indicator.

With last month's jobs numbers coming in far above expectations, the outlook for rate cuts in 2025 has become less bullish. SoundHound AI and other growth-dependent stocks are seeing particularly pronounced pullbacks today because lower interest rates tend to promote strong performance for relatively high-risk investments.

What comes next for SoundHound AI?

SoundHound AI has positioned itself as an early leader in the conversational artificial intelligence (AI) space, and it's been posting strong sales momentum as demand in the category has ramped. With its last quarterly update, the company raised its full-year sales guidance for 2024 -- and its midpoint target called for growth of roughly 82%. Even more impressive, the software specialist's midpoint target for 2025 suggests that sales will more than double this year -- marking a significant acceleration over last year's already-impressive growth.

On the other hand, SoundHound AI still has a highly growth-dependent valuation and is trading at roughly 32 times this year's expected sales even after a significant pullback for its stock. With that in mind, the company's share price could see significant volatility if macroeconomic conditions continue to move in bearish directions or if earnings reports arrive with softer-than-anticipated results.

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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.