Don't Buy SoundHound AI (SOUN) Until This Happens

Core Insights - SoundHound AI, a developer of audio and voice recognition tools, has seen its stock price decline from an opening of $8.72 to below $8 since going public through a SPAC merger nearly four years ago [1] - Despite this stock performance, the company has experienced significant revenue growth, with a 60% CAGR from 2020 to 2024 and an expected 49% CAGR from 2024 to 2027, reaching $283 million [2] - The company's enterprise value is $3.1 billion, trading at 14 times its projected 2026 sales, indicating it is not a bargain but also not excessively priced compared to other high-growth stocks [3] Revenue and Growth - SoundHound's growth is primarily driven by its Houndify platform, which allows developers to create custom AI-powered voice recognition applications, appealing to businesses that prefer not to share data with major tech companies [4] - The company has made several acquisitions, including SYNQ3 and Allset, which have increased its presence in the restaurant industry and the market for voice-enabled customer service chatbots [5] Financial Performance - SoundHound's gross margin has declined from 69% in 2022 to a projected 49% in 2024, raising concerns about the sustainability of its growth given its unprofitable status [6] - The company is working to stabilize its gross margins by scaling operations, reducing cloud costs, replacing third-party software with in-house solutions, and increasing higher-margin subscription and royalty-based revenues [7]