Artificial intelligence stock SoundHound AI (NASDAQ:SOUN) is up 117% in 2024. That’s a remarkable performance after the voice recognition specialist grew nearly 20% the year before.
Yet most of the gains have nothing to do with SoundHound’s business, but only news that Nvidia (NASDAQ:NVDA) owned a stake in the company. And it was old news at that.
Yet SoundHound AI took advantage of the opportunity by selling $150 million worth of new stock.
It used the proceeds to pay down all of its debt, some $100 million worth, and is now left in an excellent financial position.
With no debt and $180 million in cash, SoundHound AI stock is in the best position it’s been in years.
Although still a money-losing business, does its newly found financial freedom make the stock a buy? Especially after the run-up in its shares?
Dancing a Financial Two-Step Towards Profitability
SoundHound AI is one of those companies that should do better than it is. Having been in business for nearly two decades with a capable AI voice recognition technology, it should have figured out how to make a profit by now.
While it reported a loss of 7 cents per share in the fourth quarter, it was a 53% improvement from last year. On an adjusted basis EBITDA it still recorded losses of $3.7 million, though they were an 80% year-over-year improvement.
Yet in the first quarter of 2024, it took a half-step backward. Adjusted losses of almost $20 million were worse than the $17.1 million in losses it incurred the year before.
It seems SoundHound AI moves forward in the right direction in fits and starts. Profitability is still over the horizon.
SoundHound also struggles to acquire and hold onto customers. It recently signed on Stellantis (NYSE:STLA) to what could be a lucrative deal.
The automaker is moving into full production in Japan using SoundHound’s voice assistant with integrated ChatGPT.
Yet SoundHound lost other automakers including Mercedes-Benz (OTCMKTS:MBGYY).
Similarly, Netflix (NASDAQ:NFLX) signed on to use its AI voice assistant only to apparently cancel the contract afterward. It becomes a question of whether the AI is not that good or if there are simply better alternatives out there.
Not Much to Show For All the Work
This lack of real traction shows up on SoundHound AI stock’s income statement. Although first-quarter revenue nearly doubled year-over-year to $11.5 million, that’s a fairly low amount considering its $1.5 billion valuation.
It makes it seem as if this is not a premium product being offered and may account for the lack of stickiness with customers.
SoundHound AI has been riding the wave of artificial intelligence, but the coattails are not carrying its stock very far.
Management is showing it can capitalize on opportunity, though with the stock sale it came at the expense of investors who bought near the top at around $10 per share.
The stock has now lost more than half its value from those peaks. It is, however, triple the price it started the year at.
I’ve made it clear that SoundHound AI stock is an investment best suited for investors willing to invest in high-risk companies in hopes of generating high returns.
Those returns are not guaranteed. There remains too much risk and a lot of unknowns to make shares suitable for a buy-and-hold position.
I’m not opposed to SoundHound AI stock. I just don’t think it has proved it is investment-worthy yet.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
