SoundHound AI — a Santa Clara, California-based provider of AI-powered voice technology for cars, televisions, and restaurants — has returned 346% to stockholders since the beginning of 2024.
Despite the positives, including Nvidia purchasing 1.73 million SoundHound shares (0.6% of outstanding shares), according to Nvidia’s 13F filing on February 14, there are plenty of reasons to bet on the company’s stock. there is. Yahoo!financial The most active list on March 15th rose too quickly.
Here are six:
- Disappointing fourth quarter financial report.
- fierce competition.
- High cash burn rate.
- Suspicious financial statements.
- Excessive evaluation.
- Bearish bets on the company surge.
SoundHound is excited about its performance and future prospects. “We are very proud of this growth,” said CEO Keyvan Mohajer. Barons. “80 percent is really good. We had record earnings this quarter and we’re really proud of that.”
Mohajer sees a bright future for the company, hinting at new revenue from “an outstanding AI chip company,” which he declined to identify. “The real message is we’re just getting started. The demand is higher than we anticipated. And we’re very fortunate to be in this position.”
Disappointing fourth quarter financial report
On February 29, SoundHound reported lower-than-expected revenue and a higher-than-expected loss, while forecasting earnings in line with Wall Street consensus.
The important numbers are:
- Fourth quarter 2023 revenue: $17.1 million — 80% increase from last year, missing analyst forecasts by $600,000 Dow Jones Communications.
- Loss per share for Q4 2023: 7 cents — Pointed out Q4 2022 loss 8 cents per share, 1 penny per share worse than FactSet consensus Dow Jones Communications.
- Adjusted EBITDA loss for Q4 2023: $3.7 million The company reported that it significantly exceeded the FactSet consensus estimate of “less than $1 million.” market watch.
- 2024 revenue forecast: $63 million to $77 million range — reported as consistent with the consensus view at the midpoint market watch.
- 2025 revenue forecast: $100 million — According to FactSet Consensus market watch.
Intense competition with larger rivals
Soundhound offers a powerful set of voice and audio AI features. However, the company faces stiff competition.
SoundHound product features include:
- automatic speech recognition,
- text reading,
- Mobile app that identifies songs “after listening to a few bars”
- real time lyrics,
- voice-activated music search, and
- According to Houndify, a virtual voice assistant investment dot com.
It noted that large technology companies with far more resources, such as AmazonAMZN, Apple, and Google, could potentially replicate or improve on SoundHound’s “features with Alexa, Siri, and Google Assistant.” In search of alpha.
Why? Amazon CEO Andy Jassy said the company is adding large-scale language models to Alexa, and Google CEO Sundar Pichai said the company would use generative AI to power the assistant. suggested. Additionally, it seems unlikely that SoundHound will have a competitive advantage in voice AI over these larger rivals. In search of alpha I have written.
high cash burn rate
SoundHound boasts a solid cash position. Mohajer said the steps the company took in early 2024 have nearly doubled its cash position from about $109 million at the end of 2023 to more than $200 million. Barons report.
After raising $140 million in an IPO in 2021, SoundHound burned through $148 million in cash in 2022 and 2023. To remain solvent, the company has issued $98 million in stock since 2022, resulting in shareholder dilution. In search of alpha I have written.
suspicious financial statements
SoundHound’s financial statements could be in better shape.
The company changed its auditor from UHY to PwC in 2023. In SoundHound’s 2021 fourth quarter report issued in March 2022, SoundHound’s former auditor, UHY LLP, issued an “unqualified opinion expressing doubts about the company’s ability to continue as a going concern.” said. S&P Capital IQ.
SoundHound’s new auditor, PwC, had problems with the company’s internal controls. “In our opinion, as of December 31, 2023, the Company did not maintain effective internal control over financial reporting in all material respects,” PwC said in SoundHound AI’s 2023 10K.
overrated
Two analysts believe the company’s stock is overvalued. Bill Smeed of Smead Capital Management said that “traditional financial modeling suggests that the company will only generate $17 million in revenue in the fourth quarter of 2023, despite the company’s market capitalization of $1.8 billion.” He is said to have expressed strong feelings about the “dissociation between the two”. Yahoo!finance.
In search of alpha SoundHound is estimated to be worth $1.20 per share. The estimate assumed that revenue growth would slow from 50% to 20% and that the company would continue to finance its cash-burning operations through equity issuance.
Wedbush analyst Dan Ives has a $9 price target on SoundHound. He asserted that the company’s “speech recognition and natural language processing skills will be in high demand as more industries begin to use AI-powered solutions.” bar graph.
Soaring on bearish bets on the company
Short interest in SoundHound stock has skyrocketed recently. Specifically, the number of shorted shares increased by 43% in the month ended February 29, to 18.4% of the stock float. wall street journal.
From February 15, when SoundHound’s stock price rose 66% after Nvidia announced it had a stake in the company, to February 29, when the company announced disappointing fourth-quarter results (after which the stock price rose 18.6 % decline), Mr. Mohajer sold hundreds of thousands of shares. At work.
Why? On February 15th, he released 108,000 shares of SoundHound stock, and on February 26th he released another 550,000 shares. In search of alpha I got it. On March 12, he sold another 379 shares, leaving about 14.1 million shares, according to the Form 4 filing.
If Mohajar is so excited about the future of his company, why would he sell his Soundhound shares?
Soundhound AI’s stock price is 39.5 times the company’s projected 2024 sales of $70 million. “This AI stock is clearly a ‘pump-and-dump’ stock,” claims research firm Navellier, which predicts “the bubble will burst after surging more than 400% since early February.” Investing.com.
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