“AI mania” was a key driver in SoundHound AI’s (NASDAQ:SOUN) supercharged rally during February and March. During this time, SoundHound AI stock surged by more than fivefold, from under $2 per share, to prices north of $10 per share.
More recently, however, the fading of “AI mania” has had a negative impact on the performance of this AI voice technology company’s shares. While SOUN has yet to make a full trip back to sub-$2 per share prices, it’s getting close.
The stock has fallen below the $5 per share mark, and hence back into “penny stock territory.” Yet while the short-terms speculators and fair weather fans are bailing on SoundHound AI, the opportunity to lock down a long-term position is starting to emerge.
SoundHound AI Stock: Surging and Sinking So Far in 2024
SoundHound AI went public back in 2022, via a special purpose acquisition company (SPAC) merger. Given how SPAC stocks were tanking it’s no surprise that SOUN performed poorly right out of the good.
When the generative artificial intelligence investing trend first took shape in early 2023, SoundHound AI stock did benefit some, but not as much as you would assume.
Shares did rally shortly after the start of this trend. However, by the end of the year it had fallen back toward prior price levels.
In 2024, things have been playing out similarly, yet on a larger scale. In large part, due to some news that catapulted SOUN from relatively-obscure AI play, to one of the most popular AI stocks out there.
I’m talking about Nvidia’s (NASDAQ:NVDA) disclosure of its ownership of a position in the company. When this news dropped in mid-February, this stock was off to the races.
The social proof provided by the AI chip leader’s financial backing convinced many investors that SoundHound AI was a buy, no matter the price.
However, as the latest wave of “AI mania” faded last month, investors backed out of NVDA, but stampeded out of SOUN stock.
More Pain For Now, Yet a Comeback May Lie Ahead
Alongside the cooldown in “AI Mania,” some company-specific news has also been weighing on SoundHound AI stock. On April 10, the company announced that it was planning to sell as much as $150 million worth of newly-issued shares, through an at-the-market equity program.
Given SOUN’s current market cap of $1.4 billion, this secondary offering points to moderate shareholder dilution.
Therefore, it makes sense that this news resulted in a 7% drop for shares on the day of the announcement. Dilution worries could continue to be a near-term downward driver.
However, over a longer time frame, SoundHound AI shares may not only bounce back to prior levels, and then some.
Again, SoundHound AI’s share price may be winding down, but its underlying growth remains in the fast lane. During the quarter ending Dec. 31, 2023, revenue jumped 80% year-over-year.
Maintaining such high levels of growth is very possible. As we have noted recently, from automobiles to the workplace, the use cases for AI voice solutions are endless.
The company’s collaboration with Nvidia provides further opportunity to develop and commercialize this technology. Strong growth will pave the way for shares to make a comeback. This time, based on fundamentals, not hype.
The Verdict: Feel Free to Buy on Weakness
While still optimistic about its long-term prospects, err on the side caution, and approach SOUN stock slowly. Weak sentiment, combined with near-term negatives, may just well cause shares to re-test their lows.
Besides dilution, further concerns about recent insider selling may also keep weighing on this stock in the short-term. Sooner than you think, SoundHound AI’s fundamentals could once again come back into focus.
Not only that, sentiment regarding AI stocks large and small could also shift back to positive fairly quickly.
Macro uncertainty has also weighed on the sector lately. Positive news about inflation, interest rates, and economic growth could spur the market back into a “risk on” mood. This will also bode well for speculative growth stocks like SOUN.
Taking all of this into account, feel free to buy SoundHoundAI stock, whether now or on further weakness.
SoundHound AI stock earns a B rating in Portfolio Grader.
On the date of publication, Louis Navellier held NVDA. He did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
