Investors in innovative voice artificial intelligence (AI) company SoundHound AI (SOUN) have been well rewarded over the past year, with the stock outperforming the broader market with a rally of 172%. However, a recent catalyst just stopped SoundHound’s outperformance in its tracks. 

In a recent filing by chip giant Nvidia (NVDA) on Feb. 14, the company revealed that it has sold its entire stake in the company. Since then, shares of the company have been in a freefall, correcting 32% from its Feb. 13 closing price.

About SoundHound Stock

Founded in 2005, SoundHound AI uses voice AI technology and specializes in voice recognition, natural language processing, and speech-to-meaning technologies. The company operates across various industries, providing AI-driven solutions that enable businesses to integrate sophisticated voice capabilities into their products and services.

The company’s market cap currently stands at $4.3 billion and the stock is down by a considerable 48% on a year-to-date basis.

Now, did Nvidia’s sale warrant such a stark reaction in the company’s stock? I don’t think so – and here’s why.

SoundHound Boasts Solid Fundamentals 

The most recent quarter saw the company narrowing its losses to $0.06 per share compared to $0.09 per share in the previous year. Its losses came in narrower than consensus estimates and its revenue also witnessed a sizeable rise of 89% from the previous year to $25.1 million. 

Notably, the company improved its customer concentration metrics significantly in Q3. The company has significantly diversified its customer base, with its largest client now accounting for just 12% of total revenue, a sharp decrease from 72% in the previous year. This shift highlights the company’s expanding customer portfolio and reduced dependence on a single source of income.

Although the gross margin corrected from the heady levels of 73.7% in the prior year, it is still at an impressive 59.7%.

SoundHound also fortified its cash balance in the quarter ending it with $136 million compared to $95.3 million at the start of 2024. The cash balance was much higher than the company’s short-term debt levels of $19.6 million.

Encouragingly, SoundHound raised its revenue guidance for 2025 to a range of between $155 million and $175 million from its earlier forecast of over $150 million.

Principal Drivers of SoundHound’s Growth

SoundHound AI stands out as a leader in the voice AI sector for the quick-service restaurant (QSR) industry, with its technology currently used in over 10,000 restaurants. It has also secured partnerships with seven of the top 20 QSR brands. The company’s phone ordering system alone has processed more than 100 million customer interactions, showcasing the scale and impact of its technology. SoundHound’s roster of U.S. clients includes some of the most notable names in the food industry, such as Panda Express, Church’s Texas Chicken, White Castle, Applebee’s, Casey’s, and Five Guys, among others.

The company’s competitive strength in the QSR sector lies in its extensive integration, which surpasses all of its competitors combined. Establishing a dominant position early on has proven to be a key strategy for success, and SoundHound’s early lead places it in an advantageous position for continued growth in this market.

In addition to its progress in the QSR space, SoundHound is also making significant strides in the automotive sector. A recent partnership with Lucid Motors (LCID) highlights its potential in this high-growth area. Earlier this year, SoundHound launched its first in-vehicle voice commerce platform, marking a key milestone in its automotive endeavors. The company’s automotive portfolio is expanding rapidly, with deals not only in the U.S., but also in emerging markets like China and India. Its multilingual capabilities and the integration of generative AI have been crucial to securing these international agreements.

Furthermore, SoundHound’s proprietary AI model, Polaris, provides a substantial competitive advantage. Developed over two decades, Polaris was trained using billions of human conversations and over 1 million hours of audio in a wide range of languages. This sophisticated model excels in understanding speech, contextual information, and user intent, making it ideal for diverse industries. Its efficiency in terms of hosting costs further differentiates SoundHound, as Polaris was developed in-house, contributing to a lower-cost infrastructure compared to competing technologies.

Additionally, SoundHound is positioning itself as a key player in the smart answering service space, particularly for small and medium-sized businesses (SMBs). The company has already established a strong presence, with services deployed in over 1,000 locations. This segment alone has the potential to evolve into a global business, potentially worth hundreds of billions of dollars due to its scalable, low-touch business model.

Overall, SoundHound’s competitive moat is formidable, built on its proprietary technology, cost-efficient in-house model, a robust patent portfolio, and over 20 years of industry experience. The company’s sustained leadership in multiple high-growth sectors makes it a compelling player in the AI space.

Analyst Opinion

Analysts remain cautiously optimistic about the stock, attributing to it an overall rating of “Moderate Buy” with a mean target price of $13.25. This denotes upside potential of about 28% from current levels. Out of six analysts covering the stock, four have a “Strong Buy” rating and two have a “Hold” rating.