Things have been looking up for SoundHound AI (NASDAQ:SOUN) over the past few months. After ending 2024 on quite the heater, SOUN’s share price had been tanking during the first few months of the current year.
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Investors, many of whom had been leery of expanding multiples, sought to lock in gains after the share price had jumped up by hundreds of percentage points throughout the fall – especially as the DeepSeek-induced AI selloffs hit and Nvidia exited its stake in the company.
Though the company has yet to recapture its late December highs, there is still plenty of excitement around the latest surge of some 50% over the past three months. SoundHound AI grew revenues by 150% in Q1 2025, enjoys a healthy sales backlog north of $1 billion, and is making moves in the healthcare industry.
While investor Julia Ostian is intrigued by SOUN’s potential, she is voicing a note of caution.
“Make no mistake: This stock is expensive. Very expensive. And while the future might be bright, the risks are just as large,” explains the investor.
Ostian is particularly excited by SoundHound AI’s backlog of $1.2 billion, adding that this is a “mind-blowing” number for a company projecting revenues of $157 million for full year 2025. Having $240 million in cash and zero long-term debt does not hurt SOUN’s prospects either.
The investor also finds the company’s expansion into the healthcare field alluring, spotlighting the recent deal with Allina Health – which has 12 hospitals and more than 90 clinics in the Midwestern United States.
“Healthcare is a sticky industry. It’s one of the few industries where, once a system gets adopted, it tends to stay in place for a long time, for decades even,” adds Ostian.
Not all is sublime, however, and the investor is worried about operating losses and a decreasing gross margin, which fell from 60% to 36.5% last month.
The big concern for Ostian, though, is the company’s valuation, which currently sits at 40x trailing sales and 28x forward sales.
“That’s not just high, it’s in the top 1% of the entire market,” she emphasizes.
Beyond the valuation risk, there is also the looming threat of growing competition in the industry – especially from the hyperscalers.
In other words, Ostian does not believe that now is the best time to stake a position in SOUN.
“Even when everything looks good, the margin for error is paper-thin when you’re trading at 30–40x sales,” concludes Ostian. “You’re not just hoping for a strong execution. You’re betting on sentiment.”
It follows that Ostian is therefore assigning SOUN a Hold (i.e. Neutral) rating. (To watch Ostian’s track record, click here)
Wall Street is leaning ever-so-slightly more positive. With 3 Buys and 4 Holds, SOUN enjoys a consensus Moderate Buy rating. Its 12-month price target of $11.50 would imply minimal movement in the year ahead. (See SOUN stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.