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Is SoundHound Stock a Buy, Sell or Hold at a P/E Multiple of 26.1X?
Read MoreHide Full Article
Key Takeaways
SOUN trades at 26.1X P/S, nearly double its three-year median and far above industry averages.
Q2 revenue jumped 217% YOY, but GAAP loss widened due to a $31M non-cash acquisition expense.
SOUN raised 2025 sales outlook to $160-$178M, but high costs and losses continue to weigh on margins.
SoundHound AI (SOUN - Free Report) is currently trading at a forward 12-month price-to-sales (P/S) multiple of 26.1X. This valuation stands well above both its three-year median of 13.9X and its Zacks Computers - IT Services industry averages.
Over the past three years, the company’s trading range has fluctuated dramatically between 2.9X and 94.4X, underscoring both investor enthusiasm and volatility.
The current multiple reflects optimism around AI adoption, but also raises questions about sustainability, particularly given the company's ongoing losses on both GAAP and adjusted EBITDA bases.
SOUN’s P/S Ratio (Forward 12-Month) vs. Industry
Image Source: Zacks Investment Research
Share Price Performance of SoundHound
SoundHound’s recent trading action reflects both strong momentum and lingering volatility. The stock has rallied 34.6% in the past three months, sharply outperforming its industry’s 8.7% decline. At the current price of $12.74 (as of Sept. 3), shares sit nearly 195% above the 52-week low, yet remain 49% below the 52-week high. This positioning highlights investor confidence in growth prospects but also signals caution, given the premium valuation and the market’s tendency to reassess richly valued AI names.
SOUN Stock’s 3-Month Performance
Image Source: Zacks Investment Research
SOUN Stock’s Moving Average Trends
Based on its moving averages, the stock is trading comfortably above its 50-day and 200-day moving averages, as shown below, indicating bullish momentum. The 50-day moving average has been trending upward, confirming the near-term strength fueled by second-quarter 2025 earnings momentum and improved sentiment around AI stocks. The 200-day moving average, which reflects a longer-term perspective, has also started to slope upward, suggesting improving investor confidence after a volatile first half of the year.
That said, the stock’s premium valuation leaves it susceptible to sharp pullbacks if sentiment shifts or earnings disappoint.
Image Source: Zacks Investment Research
SOUN’s Earnings Momentum and Estimate Revisions
The recent earnings season highlighted SoundHound’s progress. In second-quarter 2025, the company delivered revenues of $42.7 million, up 217% year over year, exceeding analyst expectations. Non-GAAP loss per share narrowed to 3 cents from 4 cents in the prior year. GAAP results, however, were affected by a $31 million non-cash expense tied to acquisition-related contingent liabilities, widening the reported loss to $74.7 million.
Importantly, the Zacks Consensus Estimate for 2025 earnings has improved, with projected loss per share narrowing to 13 cents from 16 cents in the past month. Analysts also expect 95.6% sales growth in 2025, reflecting robust demand and a healthy pipeline. This positive revision trend signals growing confidence in SoundHound’s trajectory, but profitability remains elusive.
Image Source: Zacks Investment Research
Let’s analyze SOUN’s current strengths and risks to determine if the stock warrants an investment at this stage.
Post-Acquisition Integration and Synergies
A major catalyst for SoundHound’s turnaround has been its ability to successfully integrate acquisitions like Amelia and Synq3. By migrating these platforms to its in-house Polaris speech foundation model, SoundHound has improved accuracy by 35% and cut latency by 75%. This integration also eliminated reliance on costly third-party systems, creating millions in savings and improving gross margin scalability.
The synergy playbook is now repeatable. Previously declining businesses have been repositioned as growth engines, demonstrating management’s ability to execute complex integrations. These moves are also helping to accelerate new product cycles and broaden cross-selling opportunities, particularly in quick-service restaurants and enterprise accounts.
SoundHound’s Enterprise AI Momentum
SoundHound’s enterprise segment continues to expand across industries, including financial services, healthcare, and retail. In the second quarter, the company recorded its highest-ever number of monthly “go-lives,” underscoring improved implementation speeds. Renewals and upsells among top financial institutions highlight customer stickiness. Channel partnerships with firms like EXL and AVANT Communications further strengthen its go-to-market capabilities.
The adoption of Amelia 7, SoundHound’s agentic AI platform, is adding momentum, with 15 large enterprise customers migrating to this solution. The ability to toggle between fully autonomous workflows and deterministic functions is resonating with enterprises seeking efficiency and reliability.
Restaurant Vertical Expansion
The restaurant vertical is emerging as one of SoundHound’s strongest growth levers. In the second quarter, the company surpassed 14,000 active locations, adding more than 1,000 in the quarter. Wins with IHOP, Red Lobster, and Peter Piper Pizza, as well as expansions with Chipotle (CMG - Free Report) and Firehouse Subs, highlight both new customer acquisition and deeper penetration of existing accounts.
Voice-enabled solutions, such as Smart Answering and Drive-Thru integrations, are differentiating SoundHound from its competitors. Partnerships with Samsung and Par Technologies are enhancing scalability, while early pilots in Voice Commerce are creating a path toward incremental monetization.
However, SoundHound’s push into quick-service restaurants faces stiff competition from Amazon (AMZN - Free Report) and Alphabet (GOOGL - Free Report) . Amazon leverages Alexa and AWS to provide a broad ecosystem of voice-enabled tools, which have already been tested across various smart devices and retail platforms. Google, with its Dialogflow and natural language expertise, offers strong automation solutions through Google Cloud. Both tech giants bring scale, brand recognition, and deep AI capabilities, making them powerful rivals that could limit SoundHound’s ability to dominate the QSR AI space.
Automotive Growth and Global Reach
Automotive remains a long-term revenue driver. SoundHound expanded its footprint with a major Chinese OEM, a deal expected to generate millions of unit shipments globally. The rollout of Chat AI, its generative solution, across three additional brands boosted revenue per vehicle. Global expansion is further supported by localized models, including Chinese, giving SoundHound an edge in international markets.
While tariffs could indirectly affect royalty-based automotive revenue, the company’s multi-pronged automotive suite—from embedded edge solutions to Voice Commerce—offers diversified revenue streams.
Challenges Weighing on Profitability
Despite revenue strength, margin pressures persist. GAAP gross margin declined to 39% in the second quarter due to acquired contracts carrying lower initial margins. Non-GAAP gross margin improved sequentially to 58%, suggesting integration benefits are materializing, but the transition phase remains a drag.
Operating expenses are another headwind. R&D rose 64% year over year, sales and marketing jumped 180%, and G&A increased 91%. While these investments are necessary for scaling, they keep adjusted EBITDA negative, with the second quarter showing a $14.3 million loss.
Management also noted lumpiness in deal timing, which could introduce quarterly volatility. Large enterprise and OEM contracts are inherently unpredictable, and the third quarter may show seasonality before a stronger fourth-quarter ramp.
Balance Sheet and Outlook
SoundHound ended the second quarter with $230 million in cash and no debt. This liquidity provides flexibility to invest in growth and absorb operating losses while moving toward its target of adjusted EBITDA profitability by late 2025. The company raised its 2025 revenue outlook to $160–$178 million, reflecting confidence in its pipeline.
For investors, this financial cushion reduces near-term solvency risk but does not offset the execution challenge of sustaining growth while managing expenses.
Conclusion
At a P/S multiple of 26.1X, SoundHound trades at a steep premium to peers and its historical median. While the company is delivering record growth, expanding across verticals, and executing acquisitions, profitability remains elusive, and operating expenses are climbing. The positive trend in earnings revisions and raised revenue guidance reflects strong momentum, but risks tied to volatility, tariffs, and deal lumpiness justify caution.
With a Zacks Rank #3 (Hold), SoundHound appears best suited for investors already in the stock who are willing to ride the long-term AI adoption wave. New investors may find the current valuation stretched relative to near-term fundamentals, suggesting a wait-and-watch approach until clearer signs of sustained profitability emerge. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Is SoundHound Stock a Buy, Sell or Hold at a P/E Multiple of 26.1X?
Key Takeaways
SoundHound AI (SOUN - Free Report) is currently trading at a forward 12-month price-to-sales (P/S) multiple of 26.1X. This valuation stands well above both its three-year median of 13.9X and its Zacks Computers - IT Services industry averages.
Over the past three years, the company’s trading range has fluctuated dramatically between 2.9X and 94.4X, underscoring both investor enthusiasm and volatility.
The current multiple reflects optimism around AI adoption, but also raises questions about sustainability, particularly given the company's ongoing losses on both GAAP and adjusted EBITDA bases.
SOUN’s P/S Ratio (Forward 12-Month) vs. Industry
Image Source: Zacks Investment Research
Share Price Performance of SoundHound
SoundHound’s recent trading action reflects both strong momentum and lingering volatility. The stock has rallied 34.6% in the past three months, sharply outperforming its industry’s 8.7% decline. At the current price of $12.74 (as of Sept. 3), shares sit nearly 195% above the 52-week low, yet remain 49% below the 52-week high. This positioning highlights investor confidence in growth prospects but also signals caution, given the premium valuation and the market’s tendency to reassess richly valued AI names.
SOUN Stock’s 3-Month Performance
Image Source: Zacks Investment Research
SOUN Stock’s Moving Average Trends
Based on its moving averages, the stock is trading comfortably above its 50-day and 200-day moving averages, as shown below, indicating bullish momentum. The 50-day moving average has been trending upward, confirming the near-term strength fueled by second-quarter 2025 earnings momentum and improved sentiment around AI stocks. The 200-day moving average, which reflects a longer-term perspective, has also started to slope upward, suggesting improving investor confidence after a volatile first half of the year.
That said, the stock’s premium valuation leaves it susceptible to sharp pullbacks if sentiment shifts or earnings disappoint.
Image Source: Zacks Investment Research
SOUN’s Earnings Momentum and Estimate Revisions
The recent earnings season highlighted SoundHound’s progress. In second-quarter 2025, the company delivered revenues of $42.7 million, up 217% year over year, exceeding analyst expectations. Non-GAAP loss per share narrowed to 3 cents from 4 cents in the prior year. GAAP results, however, were affected by a $31 million non-cash expense tied to acquisition-related contingent liabilities, widening the reported loss to $74.7 million.
Importantly, the Zacks Consensus Estimate for 2025 earnings has improved, with projected loss per share narrowing to 13 cents from 16 cents in the past month. Analysts also expect 95.6% sales growth in 2025, reflecting robust demand and a healthy pipeline. This positive revision trend signals growing confidence in SoundHound’s trajectory, but profitability remains elusive.
Image Source: Zacks Investment Research
Let’s analyze SOUN’s current strengths and risks to determine if the stock warrants an investment at this stage.
Post-Acquisition Integration and Synergies
A major catalyst for SoundHound’s turnaround has been its ability to successfully integrate acquisitions like Amelia and Synq3. By migrating these platforms to its in-house Polaris speech foundation model, SoundHound has improved accuracy by 35% and cut latency by 75%. This integration also eliminated reliance on costly third-party systems, creating millions in savings and improving gross margin scalability.
The synergy playbook is now repeatable. Previously declining businesses have been repositioned as growth engines, demonstrating management’s ability to execute complex integrations. These moves are also helping to accelerate new product cycles and broaden cross-selling opportunities, particularly in quick-service restaurants and enterprise accounts.
SoundHound’s Enterprise AI Momentum
SoundHound’s enterprise segment continues to expand across industries, including financial services, healthcare, and retail. In the second quarter, the company recorded its highest-ever number of monthly “go-lives,” underscoring improved implementation speeds. Renewals and upsells among top financial institutions highlight customer stickiness. Channel partnerships with firms like EXL and AVANT Communications further strengthen its go-to-market capabilities.
The adoption of Amelia 7, SoundHound’s agentic AI platform, is adding momentum, with 15 large enterprise customers migrating to this solution. The ability to toggle between fully autonomous workflows and deterministic functions is resonating with enterprises seeking efficiency and reliability.
Restaurant Vertical Expansion
The restaurant vertical is emerging as one of SoundHound’s strongest growth levers. In the second quarter, the company surpassed 14,000 active locations, adding more than 1,000 in the quarter. Wins with IHOP, Red Lobster, and Peter Piper Pizza, as well as expansions with Chipotle (CMG - Free Report) and Firehouse Subs, highlight both new customer acquisition and deeper penetration of existing accounts.
Voice-enabled solutions, such as Smart Answering and Drive-Thru integrations, are differentiating SoundHound from its competitors. Partnerships with Samsung and Par Technologies are enhancing scalability, while early pilots in Voice Commerce are creating a path toward incremental monetization.
However, SoundHound’s push into quick-service restaurants faces stiff competition from Amazon (AMZN - Free Report) and Alphabet (GOOGL - Free Report) . Amazon leverages Alexa and AWS to provide a broad ecosystem of voice-enabled tools, which have already been tested across various smart devices and retail platforms. Google, with its Dialogflow and natural language expertise, offers strong automation solutions through Google Cloud. Both tech giants bring scale, brand recognition, and deep AI capabilities, making them powerful rivals that could limit SoundHound’s ability to dominate the QSR AI space.
Automotive Growth and Global Reach
Automotive remains a long-term revenue driver. SoundHound expanded its footprint with a major Chinese OEM, a deal expected to generate millions of unit shipments globally. The rollout of Chat AI, its generative solution, across three additional brands boosted revenue per vehicle. Global expansion is further supported by localized models, including Chinese, giving SoundHound an edge in international markets.
While tariffs could indirectly affect royalty-based automotive revenue, the company’s multi-pronged automotive suite—from embedded edge solutions to Voice Commerce—offers diversified revenue streams.
Challenges Weighing on Profitability
Despite revenue strength, margin pressures persist. GAAP gross margin declined to 39% in the second quarter due to acquired contracts carrying lower initial margins. Non-GAAP gross margin improved sequentially to 58%, suggesting integration benefits are materializing, but the transition phase remains a drag.
Operating expenses are another headwind. R&D rose 64% year over year, sales and marketing jumped 180%, and G&A increased 91%. While these investments are necessary for scaling, they keep adjusted EBITDA negative, with the second quarter showing a $14.3 million loss.
Management also noted lumpiness in deal timing, which could introduce quarterly volatility. Large enterprise and OEM contracts are inherently unpredictable, and the third quarter may show seasonality before a stronger fourth-quarter ramp.
Balance Sheet and Outlook
SoundHound ended the second quarter with $230 million in cash and no debt. This liquidity provides flexibility to invest in growth and absorb operating losses while moving toward its target of adjusted EBITDA profitability by late 2025. The company raised its 2025 revenue outlook to $160–$178 million, reflecting confidence in its pipeline.
For investors, this financial cushion reduces near-term solvency risk but does not offset the execution challenge of sustaining growth while managing expenses.
Conclusion
At a P/S multiple of 26.1X, SoundHound trades at a steep premium to peers and its historical median. While the company is delivering record growth, expanding across verticals, and executing acquisitions, profitability remains elusive, and operating expenses are climbing. The positive trend in earnings revisions and raised revenue guidance reflects strong momentum, but risks tied to volatility, tariffs, and deal lumpiness justify caution.
With a Zacks Rank #3 (Hold), SoundHound appears best suited for investors already in the stock who are willing to ride the long-term AI adoption wave. New investors may find the current valuation stretched relative to near-term fundamentals, suggesting a wait-and-watch approach until clearer signs of sustained profitability emerge. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.