SoundHound AI Inc. (SOUN) saw its shares plunge over 5% in pre-market trading on Monday, as investors appeared to reassess the company's lofty valuation amid ongoing concerns over its lack of profitability and high cash burn.

The voice AI company has seen its stock surge in recent months, driven by investor enthusiasm around the artificial intelligence (AI) sector. However, a recent analysis from The Motley Advisor highlights significant valuation concerns for SoundHound AI.

According to the report, SoundHound AI trades at a price-to-sales ratio of around 70, despite having no free cash flow or profitability. The company's valuation reflects speculative sentiment, with a negative margin of safety of -45% based on the analysis.

While acknowledging SoundHound AI's unique voice AI technology and growing partnerships, the report cites fierce competition and operational dilution as weaknesses that undermine the company's long-term growth case. The diluted shares outstanding for SoundHound AI have increased by a staggering 126.8% compound annual growth rate since 2019, raising concerns about shareholder dilution.

Despite the potential for 100% revenue growth in fiscal 2025, the report argues that sustaining momentum will heavily depend on sentiment, and the current valuation already prices in these growth expectations. As a result, the report recommends aggressively selling SoundHound AI stock, citing the overvaluation and lack of a lasting competitive advantage.