SoundHound AI Inc (SOUN) stock plunged 5.03% in pre-market trading on Wednesday, following concerns over the company's stretched valuation and weak financial performance despite its strong revenue growth.

The AI-powered voice platform company has seen a remarkable rally in its stock price over the past year, surging over 750% in 2024 driven by investor enthusiasm over its conversational AI technology and expanding market opportunities. However, recent news articles highlight that the company's valuation has become detached from its underlying fundamentals, raising doubts among investors.

According to an article by Seeking Alpha, SoundHound AI is currently trading at an unsustainable valuation of nearly 47X forward (FY 2025) revenue, significantly higher than its peers like Palantir Technologies. Despite impressive revenue growth of 89% year-over-year in the third quarter of fiscal 2024, the company is not yet profitable, and its losses have widened lately. Additionally, SoundHound AI's gross profit margins have been declining, and it has negative operating and free cash flows, raising concerns about its ability to justify its lofty valuation.