SoundHound’s proprietary technology and popularity in certain sectors form a strong moat.
However, heavyweight competitors and ongoing losses remain concerns for investors.
The stock’s valuation remains high despite a significant pullback in the stock.
SoundHound AI (NASDAQ: SOUN) has experienced considerable price movement in recent months. Shares of the voice-recognition specialist rose in the summer and fall of last year but has since given back all of those gains. The unpredictability may increase when it announces earnings for the fourth quarter and full year 2025 on Feb. 26.
Do such conditions make now a good time to buy SoundHound AI stock, or should investors stay on the sidelines?
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SoundHound stands out for its AI-driven, proprietary voice recognition technology. Its system can process voice commands that can understand natural language. It backs this technology with around 400 patents, increasing the size of its competitive moat.
Furthermore, its Polaris model uses large language models to make its technology more reliable. Clients also prefer SoundHound because it does not have to share user data with the company. It built a following among several automakers, but it has since become more popular among other types of businesses, giving it a base that is more likely to avoid the switching costs involved with turning elsewhere.
Still, investors have to remember that at a market value of around $3.2 billion, SoundHound remains a tiny company, particularly when compared to multitrillion-dollar tech giants competing in this space. Those include Alphabet, Microsoft, and Amazon, which plan to spend a combined $525 billion on capital expenditures this year.
Financially, its small size is a mixed bag. In the first nine months of 2025, its nearly $114 million in revenue increased by 127% compared to the same time frame in 2024. Unfortunately, its costs and expenses exceeded revenue by a wide margin, leading to a loss of $54 million in the first three quarters of 2025. In comparison, the company lost $92 million in the same year-ago period.
Also, looking forward to Q4, the company’s forecast of around $54 million in revenue would mean a 63% increase. Although that still amounts to robust growth, such slowdowns often unnerve investors. Nonetheless, the company holds $269 million in liquidity, meaning it will not have to take on debt or significantly dilute shareholders to stay in business.
Instead, the problem for SoundHound stock, aside from staying competitive, is its valuation. Despite the aforementioned pullback, it trades at a price-to-sales (P/S) ratio of almost 21. That is down from last fall when the sales multiple was approaching 60. Still, considering the S&P 500 average P/S ratio of 3.4, investors have to pay a considerable premium. Thus, the sell-off in the stock could continue.
Given the current state of SoundHound AI’s finances, investors should probably not add shares at this time. While its proprietary technology and rising revenue bode well for the company, the massive resources of its competitors and ongoing losses rightly remain concerns. Amid those worries, the P/S ratio of 21 is still a high price to pay for the stock and could leave investors wondering what could happen next.
With so much uncertainty, it is probably best for investors to stay on the sidelines for now.
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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and SoundHound AI. The Motley Fool has a disclosure policy.
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