Down 51% From Its 52-Week High, Is Now the Time to Buy SoundHound AI Stock?

SoundHound AI (NASDAQ: SOUN) has emerged as a leader in conversational artificial intelligence (AI) with a technology platform empowering various speech-enabled applications.

Strong growth has propelled the stock to more than double in value over the past year. At the same time, shares are also down 51% from their 52-week high as the market assesses the company's long-term financial potential.

While this type of volatility warrants some caution, the recent sell-off can offer an opportunity for investors to pick up discounted shares of a company that has significant potential. Is now the time to buy SoundHound AI stock?

Excellent growth to start 2024

Voice AI and speech recognition are important areas of innovation as the format typically represents a more natural way for people to interact with smart devices compared to text-based inputs. SoundHound AI has found success partnering with major automakers that are increasingly adding high-tech features, including the company's in-vehicle assistant with generative AI capabilities.

The company's platform is also found in the food service industry with voice AI-assisted point-of-sale interfaces used by several high-profile restaurant brands for smart ordering experiences.

The trends are impressive. In the second quarter, SoundHound AI posted revenue of $13.5 million, a 54% increase from the same period last year.

Management notes its systems are tracking a run rate of 5 billion queries, up 90% year over year, indicating rising user engagement. The cumulative subscriptions and bookings backlog, measuring achievable revenue potential over a four-year ramp-up period, is at $723 million -- roughly double from last year.

On the other hand, a shifting sales mix as SoundHound AI adds new products has impacted near-term financial results. In this case, the Q2 adjusted gross margin of 63.0% fell from 79.1% a year ago. Negative adjusted earnings before interest, taxes, depreciation, and amortization ( EBITDA ) this quarter of $13.8 million widened from last year's $10.1 million loss.

Beyond the recent stock price weakness, the takeaway here is that SoundHound AI has delivered a solid first half while continuing to invest toward more growth.

Image source: Getty Images.

A game-changing acquisition

Alongside the second-quarter earnings report, SoundHound AI announced the acquisition of Amelia, an enterprise AI software company, for $80 million.

The deal leverages SoundHound AI's leadership in conversational AI while marking a major expansion into new industry verticals like healthcare, insurance, financial services, and retail, all primed for disruptive AI solutions.

The company envisions a voice commerce ecosystem that enables consumers to use voice AI to make purchases seamlessly from anywhere. Amelia's expertise in AI customer service furthers SoundHound AI's long-term goals.

With the contribution of Amelia's recurring software business, SoundHound AI is now targeting full-year revenue to exceed $80 million, an increase of at least 75% from 2023. That momentum is expected to extend into 2025 with an initial target for revenue above $150 million and positive adjusted EBITDA by next year.

Why I'm bullish on SoundHound AI

There's a lot to like about SoundHound AI as a pure play on artificial intelligence supported by a unique product lineup and proven technology. The bull case is there's room for results over the next several quarters to outperform expectations with a path for improving earnings and cash flow.

While profitability remains elusive, the market typically rewards companies generating high growth. In terms of valuation, SoundHound AI is currently trading at approximately 22 times management's 2024 revenue guidance. That's a pricey growth premium, which bulls can only justify based on the belief the company is still in the early stages of capitalizing on the voice-enabled generative AI opportunity.

I'm cautiously bullish on SoundHound AI with an expectation for shares to remain volatile while rallying higher over time. One strategy to consider is dollar-cost averaging to build a position while attempting to minimize timing risks. For investors taking a long-term view, the stock can add growth and AI exposure in the context of a diversified portfolio.

Dan Victor 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 .