Up by Around 560% Since the Start of 2024, Is This Remarkable AI Stock Still a Buy?

Few stocks have been on a run like SoundHound AI (NASDAQ: SOUN) has over the past year. It rose by more than 1,000% at one point during 2024, though it has come down by about 42% from its December peak. Yet with the stock still up by around 560% since 2024 began, many investors may wonder if this artificial intelligence (AI) stock remains a good pick from here.

On the one hand, the adoption of its software seems practically unstoppable, and SoundHound is projected to double its revenue in 2025. On the other, the stock is priced at a steep premium. Is it worth it?

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SoundHound AI is a key part of AI integration

Most AI models available today require a text input to trigger a response. This has been the approach for nearly all generative AI models like ChatGPT or DeepSeek's R1. However, the need to type in text limits their use cases. There are many situations where having the ability to simply speak to an AI would be far superior, which is why SoundHound AI's stock has gotten a lot of attention.

Digital assistants that can parse ordinary speech have been around for a long time -- think Siri or Bixby on a smartphone, or Alexa on a smart home device. However, those often misunderstand your words or misinterpret what you mean, making them frustrating to use.

SoundHound's voice comprehension technology can outperform a human being in some cases. For example, when SoundHound's technology was installed at White Castle's drive-thrus, it surpassed the benchmarks previously established by employees, getting orders processed faster and more accurately. That's critical: Nobody wants to interact with an AI platform that's less accurate than a human.

The potential use cases for this technology are diverse, but SoundHound has already found many applications in the automotive, restaurant, healthcare, financial, and insurance industries. Today, no individual sector provides more than 25% of its total revenue. That's a huge change from last year, when 90% of revenue came from automotive, and 72% came from a single corporate customer.

Recognition of the rapidly expanding demand for SoundHound's software is what caused the stock to rocket higher in the last couple of months of 2024.

The stock trades at a high price

Because SoundHound AI isn't profitable, investors can't use earnings-based metrics to value its stock. That leaves revenue-based metrics -- and while its current price-to-sales (P/S) ratio of 64 is far cheaper than the 100 times sales multiple it traded at in late 2024, it's still incredibly expensive.

SOUN PS Ratio data by YCharts.

Most software companies trade for 10 to 20 times sales, while the fastest-growing ones may reach 30 times sales. So SoundHound is valued at a level about double where most software companies trade. However, it may be earning that premium.

In 2025, management expects revenue to be between $155 million and $175 million, which is about twice the amount it's expected to report for 2024 ($82 million to $85 million). Not many companies double their revenue year over year. Furthermore, SoundHound's bookings backlog of more than $1 billion indicates that it has a ton of additional growth in the pipeline after 2025.

It's hard to place a solid value on SoundHound because it's growing so quickly. This is why the stock has been volatile over the past month -- investors don't know how to price it. When SoundHound releases its Q4 earnings (likely in late February), the stock may make a large one-day price adjustment, but then it should settle down a bit as expectations for 2025 will be more clearly established.

Is SoundHound AI a buy?

So, should you buy SoundHound stock? That's a hard question to answer. Due to the popularity of its platform and the breadth of its potential use cases, SoundHound could easily double its revenues in fairly short order. However, much of that expected growth is already baked into the stock price, and assessing if there's any upside left is difficult.

I'm staying on the sidelines for now, but I wouldn't blame anyone who wants to take advantage of the past month's sell-off to open a stake in SoundHound. However, if you do buy this stock, keep your position small (I'd suggest no more than 1% of your portfolio's current value). That way, if the price declines further, it won't hurt you that much. But if it rebounds and heads higher again, you can profit from its AI technology.

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Keithen Drury 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.