Could Buying SoundHound AI Stock Set You Up for Life?

So far, 2025 has not been kind to SoundHound AI (NASDAQ: SOUN) stock. The speech recognition specialist's shares are down 45% year to date. And the pessimism intensified on Feb. 14 after Nvidia's latest 13F filing with the Securities and Exchange Commission revealed that the chip giant had sold its entire equity stake in SoundHound during the fourth quarter.

Yet SoundHound remains a small company pursuing a potentially massive niche, so if things go well, its stock could deliver extraordinary returns. With that in mind, should investors view this year's dip as a buying opportunity or a sign to stay far away from the stock?

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Nvidia jumps ship

SoundHound's share price received a massive boost in early 2024 after a 13F filing revealed that AI hardware giant Nvidia had taken a 1.7 million share stake in it. The market took this as a sign that Nvidia was optimistic about SoundHound, and might have been eying a future collaboration or an acquisition.

The companies worked together on SoundHound ChatAI, an in-car voice assistant designed to offer generative AI capabilities without an internet connection. But other than that, collaborations between the two companies seemed limited.

Then came that latest 13F filing, showing that Nvidia had exited its position in SoundHound, as well as its positions in several other small AI companies including Nano-X Imaging and Serve Robotics.

Naturally, some investors will fear that the move indicates that Nvidia knows something about SoundHound that the rest of us don't. But this fear is unfounded.

For starters, Nvidia's position was less than 1% of SoundHound's shares outstanding. As such a relatively small shareholder, it's unlikely to have had access to information that wasn't already public. Furthermore, the position was exited so quickly that SoundHound's core thesis didn't have time to play out. While it is impossible to know precisely why Nvidia bought and sold the shares, the investment may have just been a way for the chipmaker to deploy a bit of its excess cash as it continues to earn enormous profits.

What is SoundHound's buy thesis?

The main reasons for retail investors to bet on SoundHound now are the potential synergies between voice recognition technology and the large language models (LLMs) that underpin platforms like ChatGPT. These uses are the AI industry's obvious low-hanging fruit. And SoundHound has already secured numerous partnerships with automakers to support their in-car voice assistants and restaurants piloting its software in drive-thrus. The total addressable market is likely large because, if this software is good enough, it could replace some employees, providing restaurants with instant cost savings on labor.

SoundHound's revenue surged by 89% year over year to $25 million in the third quarter as it attracted more clients across a wide range of industries. It also significantly improved its customer diversification, with only 12% of revenue coming from its largest customer compared to 72% in the prior-year period. But while SoundHound's growth was excellent, it wasn't entirely organic. It recently undertook a series of acquisitions, including the purchase of food ordering marketplace Allset in June.

Image source: Getty Images.

SoundHound's bottom line is also concerning. Its operating losses more than doubled to $33.8 million in Q3, which suggests that the company has no clear path to profitability for the time being.

Could SoundHound Stock Set You Up for Life?

SoundHound has an early-mover advantage in its pursuit of a potentially massive opportunity. And Nvidia's recent divestiture might not be as bad a sign as the market fears. That said, the recent dip in the share price is not a buying opportunity.

SoundHound has been relying on an acquisition-dependent growth strategy that may obfuscate its organic growth potential. Furthermore, its losses continue to expand. Even investors who feel strongly about the company's AI opportunity should wait for more clarity about its ability to exploit it profitably before considering opening a position in the stock.

Should you invest $1,000 in SoundHound AI right now?

Before you buy stock in SoundHound AI, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and SoundHound AI wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $823,858!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

Learn more »

*Stock Advisor returns as of February 24, 2025

Will Ebiefung 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.