Shares of SoundHound AI (SOUN 9.80%) were flying higher on Tuesday. The stock had gained 11.3% as of 2:40 p.m. ET, but had been up as much as 12.5% earlier in the day. The leg up comes as the S&P 500 gained 0.7% and the Nasdaq Composite gained 1.3%.

SoundHound, which develops voice-based artificial intelligence (AI) technology, saw its shares recover after yesterday's tariff activity seemed mostly resolved.

The threat of tariffs sent stocks lower

Stocks across the market including SoundHound were hit Monday as investors believed the U.S. might be at the beginning of a trade war. Although President Donald Trump's tariffs on China remain in place, those meant for Canada and Mexico were paused on Monday. SoundHound stock started recovering after news broke that deals had been reached with Mexico and Canada.

The recovery continued today after China announced a response to Trump's tariffs on goods imported from that country. Reading between the lines, it appears that China would like to avoid escalating things further and has provided a way for the countries to settle things. The tariffs China introduced in response are specific and would have a limited impact. Further indicating the country would like to reach a deal, the tariffs will not take effect immediately.

SoundHound does business with China and a trade war would directly impact its bottom line. At least for now, it seems this may be avoided.

SoundHound still has a lot to prove

SoundHound is still in the red, reporting a net loss last quarter of more than $21 million on revenue of only $25 million. Despite this, the company has a market capitalization exceeding $5.6 billion. This company is all about the future; it has yet to prove it can justify a market cap that high. As such, only very risk-tolerant investors should consider it.