SoundHound AI (NASDAQ:SOUN) has emerged as a significant player in the artificial intelligence (AI) sector. Shares of the frontrunner in voice AI have surged more than 100% year-to-date (YTD). This impressive performance starkly contrasts with the Global X Robotics & Artificial Intelligence ETF (NASDAQ:BOTZ), which has declined nearly 1% over the same period.

However, the rapid appreciation of the SOUN stock price raises concerns about the sustainability of the move. The AI sector is currently facing increasing scrutiny and market volatility, which could also impact SoundHound AI stock performance further. Therefore, potential SOUN stock investors should be cautious now. While SoundHound AI shows promise, understanding the broader market dynamics and the company’s specific challenges will be crucial in evaluating the stock’s future trajectory.

Current Headwinds for SOUN Stock

Since its public debut in 2022, SoundHound AI has faced controversies, including allegations of fake revenue and fake bookings. Nevertheless, the company has garnered significant attention in the AI sector, particularly after securing backing from strategic investors including Nvidia (NASDAQ:NVDA). The integration of SoundHound Chat AI on the Nvidia Drive platform and collaborations with industry giants like the auto group Stellantis (NYSE:STLA) have bolstered its market position. Yet, despite these positive developments, concerns are voiced whether SOUN stock can continue to appreciate in the short run.

Let’s start with the short-term technical indicators. Following the recent decline in price since mid-July, a number of widely followed technical indicators present a mixed outlook for SOUN. Thus, we are likely to see a tug of price war between SOUN buyers and sellers around these levels, leading to increased volatility. If bearish sentiment around tech and AI shares continue in the weeks ahead, SOUN stock will likely come under further pressure.

In addition, SoundHound’s fundamentals paint a mixed picture. At this point, the company is not yet profitable. Many small growth stocks typically start their Wall Street journey in the red. But issues around profitability could deter some investors if the market questions the sustainability of future growth in the AI segment.

Furthermore, the price-to-book (P/B) ratio of 9.3x and the price-to-sales (P/S) ratio of 28.2x suggest the market may be expecting SoundHound AI to deliver strongly to justify such high valuation levels. Therefore, upcoming earnings reports and market reactions to broader AI sector movements will be critical in shaping investor sentiment and the stock’s trajectory in the near future.

Long-Term Outlook: Bullish on SoundHound AI

SoundHound AI facilitates voice interactions within AI applications. Transitioning from a music recognition platform, it now features advanced technologies like Speech-to-Meaning® for quick responses and Automatic Speech Recognition (ASR) for real-time speech, essential for automotive and smart devices. Its Natural Language Understanding (NLU) allows more nuanced conversations, and customizable Text-to-Speech (TTS) enhances brand identity across various sectors, including automotive, customer service and retail.

In the second quarter of fiscal year 2024, SoundHound AI reported a 54% year-over-year (YOY) revenue increase, reaching $13.5 million. Despite high R&D costs affecting profitability, the company has also bolstered its cash reserves to $201 million.

SoundHound AI’s growth strategy has three pillars; royalties from voice-enabled products, subscriptions for voice services and monetization of connected services. Signing notable names each quarter brings them closer to mobilizing the third pillar, expanding their market and enhancing consumer experiences. By securing partnerships with leading brands, the company is working toward its goal of establishing a voice commerce ecosystem, expected to drive sustained growth.

Recently, SoundHound AI announced the early payoff of $100 million in debt, highlighting its robust cash position and strengthened financial profile. This will likely enhance the company’s ability to meet increasing customer demand for voice AI solutions.

Cautious Optimism for SOUN Stock

The global voice AI market is anticipated to reach $53.67 billion by 2030, growing at a compound annual growth rate (CAGR) of 14.6% from 2024 to 2030. Thus, companies like SoundHound AI are well-positioned to capitalize on this rapidly growing market.

Recent acquisitions, such as SYNQ3 Restaurant Solutions and key assets from Allset, enhance SoundHound AI’s capabilities in the restaurant sector. Additionally, collaborations with automotive giants like Hyundai (OTCMKTS:HYMTF), Mercedes-Benz (OTCMKTS:MBGAF) and Stellantis position the company to capitalize on the increasing integration of AI in vehicles.

Finally, analysts remain bullish on SOUN stock with a 12-month median price forecast of $7.43, implying a significant upside potential of over 70%. Therefore, waiting now to find a better entry point into the SOUN stock price could unlock the door to better long-term gains. While short-term risks exist, SoundHound AI’s long-term potential makes it a worthy consideration for growth-focused portfolios.

On the date of publication, Tezcan Gecgil did not have (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.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.