Summary

• SoundHound AI, which experienced a stellar 2024 with an +8x spike in the share price, has now lost over a third of its market cap in early 2025.

• The CES 2025 event appears to be the chief culprit, with SOUN not quite living up to the hype.

• CES doesn't have any major catalysts until the 28th of Feb, when it will announce Q4 results.

• Forward valuations are not dispiriting, particularly in light of the revenue outlook which has not been trimmed despite the disappointing CES.

• The stock is still trading at a relatively high threshold versus other software and services stocks.

Vertigo3d

After An Astounding 2024, Things Appear To Be Going Awry In Early 2025

SoundHound AI (NASDAQ:SOUN), one of the dominant entities in the field of Voice AI, was something of a stock market darling in 2024; in a year where Robotic and AI-themed stocks couldn’t even generate half the returns of their tech-heavy benchmark (on average), SOUN ended up trouncing its peerset quite handsomely (SOUN is part of the BOTZ portfolio), with an +8x appreciation in the share price!

YCharts

While it is still early days, the new year hasn’t quite gotten off to a great start, with the SOUN stock losing well over a third of its market cap; admittedly, the Nasdaq and the BOTZ portfolio have hardly set the world alight in 2025, but they appear to be holding up a lot better with price contractions of only 1-2% during the first two weeks of the year.

YCharts

So, what has upset the applecart?

CES 2025 - A Damp Squib For SoundHound

Well, it looks the market doesn’t like what has come out of CES 2025 which took place from the 7th to the 10th of Jan in Las Vegas. To get a better sense of this, take a look at SOUN’s daily price action over the past month. From the latter half of December until Jan 7th, the stock appeared to be chopping around within a certain range; the glass half full cohort would have likely seen this as a bout of healthy consolidation before another leg higher, but what eventually transpired is quite the reverse, with a sharp downtrend, characterised by a series of red-bodied candles since the CES kicked off.

Investing

Most of you may well be aware of this, but for the uninitiated, the CES (Consumer Electronics Show) is an annual trade show, backed by the Consumer Technology Association, a trade organization representing the interests of over 1200 US consumer tech firms. The CES has taken place annually for well around 5 decades now, and has served as the principle “proving ground” for various path-breaking tech (although some have become obsolete over the years) such as VCRs, HDTVs, home-based gaming, battery-powered cell phones, 3D printers, cloud-based music, driverless car technology, camera-equipped drones, AR/VR (augmented reality, virtual reality) tech, amongst others.

In this year’s CES, SoundHound was expected to make a big splash, talking up its burgeoning capabilities in avenues such as in-car voice commerce, generative AI-based in-vehicle voice assistant technology, voice assistance based on gen-AI on the edge without cloud connectivity, AI-powered drive-thru solutions, and customizable AI-powered voice assistants for the SMB market.

Of all these budding technologies, one could perhaps argue that the greatest sense of anticipation centered around the voice commerce technology, which SOUN management believed could create an entire “new category” in the market. Needless to say, we were not present at CES 2025, and thus, weren’t privy to how impressively SOUN promoted its voice ordering channel, but based on third-party reviews, the jury is still out. Worryingly, amongst the innumerable products and technologies that were on show, SOUN’s voice commerce tech garnered the infamy of making it to the “worst in show” list, which as the name suggests, shines the light on the worst products at the CES event.

We don’t believe one should express too many doubts about whether this voice ordering tech can fill a gap in the market over time, when a previous survey across US and Europe has shown that the majority of drivers would welcome this feature, but questions may be asked if it is still compelling enough to warrant broader adoption at this stage.

SOUN has previously argued how they have an edge over the competition because they can combine ASR (Automatic Speech Recognition), and NLU (Natural Language Understanding) in one go to better understand speech, but the chief bugbear amongst the critics at CES appears to be the degree of computing power and energy that SOUN’s voice commerce tech requires, relative to other competing voice assistants. In categories such as EVs where battery efficiency levels are hardly consummate, the elevated computing power of SOUN's voice assistant may be seen as a deterrent.

December 2024 Investor Presentation

Another disappointment from the CES that may have also swayed sentiment is the lack of timeline colour on potential deal closure with auto manufacturers, which SOUN has been in discussions with for a while now. As we’ve noted earlier, the sooner SOUN can start getting into these types of deals, the sooner it can diversify away from its royalty-based revenue profile. Then, while this is less of a concern for us, broader sustainability-related questions are also being asked about the second-order effects of adopting a product of this sort, given how in-car ordering for takeout could potentially lead to a spike in wastage and packaging.

Part of SOUN’s meteoric rise in 2024 can also be attributed to its linkage with the AI rockstar - Nvidia (NVDA) where the two companies have infused generative AI capabilities and edge computing to come up with a vehicle voice assistant that can function even in the absence of cloud connectivity. The utilitarian effects of something like this should not be played down as car drivers can still derive useful insights even in areas where connectivity is poor. Nonetheless, we suspect the market may also have been disappointed to note that Jensen Huang - the CEO of NVDA did not think it was worth mentioning his company’s tie-up with SOUN at his CES 2025 keynote, which extended for well over an hour and a half.

What Next?

Until the 28th of February, when SOUN will publish its Q4-24 results, we don’t envisage any major catalyst that could help SOUN revisit the highs it saw last year.

What could perhaps help prop up sentiment is if SOUN came out with a press release, laced with technical data, refuting some of the criticism that its tech has received at the CES for not being energy efficient. Since they’ve also suggested that they are in discussions with “well-known” auto manufacturers to get them to adopt their tech, some announcement of further deal closures on this front, may help arrest bearish sentiment, although it is still doubtful if it will give a major shot in the arm to the stock price. We say this because at the turn of the year, we saw SOUN announce the launch of a Integrated Gen AI based voice assistant for Lucid Motors, but the stock reaction on that day, and the following days was underwhelming to say the least.

Investors should also be mindful of the fact that this is a counter which attracts a great deal of bearish participants who may likely get even more emboldened as some of the key moving averages start trending lower (as things stand, SOUN is still trading above its 3 key moving averages on the daily chart). Since the latter half of last year, the percentage of float that has been sold short has equated to roughly one-fourth of the total float, which is certainly not very comforting. The other key factor to note is that this stock’s ownership is heavily dominated by retail participants (institutions only account for 27% of the shares outstanding) who often don’t have the financial wherewithal and the mental fortitude to make large purchases and support the stock in the face of relentless selling pressure.

Seeking Alpha

Some investors may be tempted by SOUN, as its valuations don’t come across as too off-putting, particularly when you consider the revenue growth that the business is poised to deliver. Over the next two years, SOUN is set to deliver revenue CAGR of 55% (and turn EBITDA positive by the end of the current year), but its EV/sales multiple is at a much lower threshold.

Seeking Alpha

There was a time when it was trading at a forward EV/Sales multiple of triple digits not too long ago, but now it can be picked up at less than 29x.

YCharts

Note also that consensus hasn’t moved their revenue estimates one bit since the CES event, so apparently this sell-off is not quite fundamentally driven, and largely looks like some of the retail overexuberance showing some signs of normalization.

YCharts

YCharts

Having said all that, note that despite a meaningful correction, SOUN’s relative strength ratio versus other software and services stocks still remains at a very high threshold (1.41x its long-term average), and this may not yet necessitate a great deal of buying interest.

Investing

The sensible approach may be to wait for the downtrend to flatten out, potentially at the 20-week rolling average, which also coincides with the previous resistance (which could turn to support) at around the $10 levels.