Three Uncertainties Surrounding SoundHound AI's Stock as the Year 2025 Approaches
This year's been a game-changer for voice AI company SoundHound AI (SOUN, up 23.70%), which saw its stock skyrocket over 600% since January, making it one of the most talked-about AI stocks in recent times. Its market cap now surpasses the $5 billion mark.
The stock caught the attention of investors following Nvidia's investment in the company earlier this year. However, the question remains if it can continue this momentum into 2025. That answers to three essential queries may hold the key.
1. Can SoundHound manage its expenses efficiently?
While SoundHound's revenue growth has been commendable this year, its bottom line hasn't followed suit. This isn't necessarily problematic for growth investors right now as the business is still in its infancy.
However, if the company continues its spending spree, it could severely impact its performance and stock value. In the three months ending September 30, StreetHound's sales escalated by 89% to $25.1 million. However, its operating expenses surged faster by 112%, resulting in a significant increase in its operating loss. From a loss of $14.5 million a year ago, the company's operating loss skyrocketed to $33.8 million in the latest quarter.
Investors may be willing to overlook this for now, but the trend must be monitored closely to avoid negative implications on the stock's performance.
2. Can SoundHound grow independently?
SoundHound's growth rate significantly increased in the recent quarter, mainly due to the acquisitions of Amelia Holdings and SYNQ3. These acquisitions expanded and diversified SoundHound's customer base and revenue streams.
Before these acquisitions, the company relied heavily on the automotive sector. Now, it draws revenue from various sectors.
While SoundHound's year-over-year growth rates look impressive, the quarter-over-quarter rate is more crucial to investors. It provides insights into how well the business is growing, especially considering the recent acquisitions. If the company can't demonstrate organic growth, this could highlight a lack of demand for its core business, which is a concern for investors.
In the previous quarter, the company's growth rate was substantially slower at 54%.
3. Will SoundHound's cash flow enhance?
Cash flow could be a significant issue for SoundHound investors in 2025 as the company expands. If it struggles to generate positive cash flow, it may need to resort to issuing new shares to raise funds.
This sets off red flags as more shares result in dilution. As the stock price declines, investors may be forced to sell their shares, driving down the stock price further.
Between the last three quarters, the company burned through $75.8 million, which is a considerable increase from the $54.4 million it spent during the same period the previous year. If SoundHound's cash burn rate doesn't improve drastically in 2025, investors could be facing more stock offerings.
The average share count has increased by an astounding 49% over the past year, reaching more than 360 million shares.
Is SoundHound AI a worthwhile investment in 2025?
SoundHound AI's stock has been a winning bet in 2024. However, the company's performance remains uncertain. If its growth is being propped up by acquisitions, it could create a misleading picture of its true performance. Expanding losses and the looming threat of more stock offerings in the future make it a risky investment, suggesting the company hasn't yet earned the "hot stock" title just yet.
Unless SoundHound can address its profitability, growth, and cash flow challenges, it may be best to steer clear of the stock. The uncertainty surrounding the business makes it a questionable investment at this time.
Despite SoundHound AI's impressive stock performance, managing its finances effectively is crucial for maintaining its momentum. If the company continues its spending spree, it could impact its performance and stock value significantly. (finance, money, investing)
As SoundHound AI continues to grow, its cash flow will be a crucial factor to consider in 2025. If it struggles to generate positive cash flow, it may need to issue new shares, leading to potential dilution and negatively affecting its stock price. (finance, money, investing)
