Is SoundHound AI a Buy?

SoundHound AI (NASDAQ: SOUN) is at the forefront of the artificial intelligence (AI) market. The company's voice AI technology is used for everything from vehicle infotainment systems to drive-thru ordering kiosks at restaurants.

The stock was a market darling last year, surging 836% as soaring revenue growth attracted new investors. The stock has since pulled back, however, amid concerns about a potential economic slowdown spurred by President Trump's tariffs.

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In light of all this, is SoundHound stock a buy right now?

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The case for buying SoundHound

There are good reasons SoundHound has caught the attention of investors. First, the company is increasing sales at a healthy clip. Revenue surged 85% in 2024 to $84.7 million as SoundHound expanded its client base.

Management says it's working with over 30% of the top 20 quick-service restaurants and 70% of the top 10 global financial companies, and it has recently signed on six more Stellantis automotive brands for its SoundHound Chat AI Automotive service.

SoundHound is tapping into the fast-growing agentic AI market where artificial intelligence assists humans with things like customer service calls and online ordering. One estimate sees this market's value rising to $139 billion by 2033.

Additionally, SoundHound is in a strong financial position as it finished the year with $198.2 million in cash and no debt, which is impressive for a company still in growth mode.

The case for avoiding the stock

Unfortunately, SoundHound's growth isn't the entire story. The company is far from profitable, and its net losses expanded last year. SoundHound finished 2024 with a non-GAAP net loss per share of $0.05, slightly worse than its $0.04 loss per share the previous year.

It's not unusual for fast-growing companies to be unprofitable, but the current economic backdrop is raising questions about how well smaller companies will fare if a recession or economic slowdown emerges.

A recent CNBC survey found that 60% of U.S. CEOs believe a recession is coming in the next six months. They aren't the only ones, either. Dozens of economists recently put the odds of a recession at 47% over the next year.

The potential for a slowdown stems from President Trump's aggressive trade policies. While SoundHound may not be directly affected by this administration's tariffs, many companies it works with are or could be. For example, automaker and SoundHound customer Stellantis has already laid off some workers and paused production at two plants in response to tariffs.

Put simply, some of SoundHound's customers could decide to invest less in its technology in light of economic concerns.

Additionally, SoundHound stock still looks expensive, despite its recent pullback. The company sports a price-to-sales (P/S) multiple of 31 as of this writing, a significant premium considering the average P/S multiple for software companies is about 11.

The verdict: Sit this one out for now

SoundHound has a lot of momentum behind it, and the company's doing a good job expanding its sales and customer base. But the current economic uncertainty could slow its growth over the next year, and given its rich valuation, that would result in significant losses for the stock. So, at least until the effects of the tariffs become clear, it's probably best to pass on this stock.

For those still bullish enough to stomach the risk, just keep in mind the market has been on a wild ride recently, and as more tariff and economic news emerges, SoundHound's share price is likely to experience significant swings as well.

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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.