SoundHound AI Sees Trading Turmoil Despite Early Gains - Is It Time to Buy?

SoundHound AI (SOUN -4.62%) experienced a rollercoaster day of trading on Monday, ending down 4.6% after reaching an increase of 7.8% earlier in the session. In contrast, the S&P 500 index dropped by 1.8%, while the Nasdaq Composite saw a decline of 2.7%.

The significant sell-off for SoundHound AI was attributed to heightened concerns over the valuations of artificial intelligence (AI) companies and broader economic factors. Recent reports indicated that China was circumventing U.S. export restrictions by acquiring Nvidia's top-tier AI processors through third-party vendors. The situation worsened when President Trump announced new tariffs on imports from Canada and Mexico, leading to intensified selling.

Should Investors Consider SoundHound AI Stock Now?

Investors may want to think carefully, as SoundHound represents a high-risk investment. While the company is making strides in the conversational AI market, this sector is in its infancy and is poised to attract numerous resource-rich competitors. Notably, Amazon has been garnering attention with its advanced Alexa conversational service.

SoundHound AI is trading at a valuation reliant on growth, which persists even after its stock declines this year. Currently, the stock is priced at around 24.6 times its anticipated sales for this year, and it is not expected to achieve profitability until 2025.

On a more positive note, the recent pullback in valuation follows a promising fourth-quarter report released last week. The company's sales for that period surpassed expectations, prompting SoundHound AI to raise its sales forecast for the current year, now projected to be between $157 million and $177 million, an improvement of $2 million at both the upper and lower ends of the range. Although SoundHound AI remains a highly volatile investment, its recent performance suggests it may be a more appealing buy, given the strong Q4 results and declining share price.

Author has no financial interests in the stocks mentioned. No affiliations with revealed entities.

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