This yr has been a nonstop thrill journey for SoundHound AI (NASDAQ: SOUN) traders. After kicking off 2024 with a 23% loss by Feb. 5, the synthetic intelligence (AI) and voice recognition specialist reversed course, notching 323% features by March 15. It then turned south, dropping half its worth as of market shut on Wednesday. After such a whiplash-inducing journey, the inventory remains to be up 112% for the reason that yr started.
One Wall Avenue analyst views the decline as a optimistic factor.
Decrease danger, however nonetheless dangerous
Cantor Fitzgerald analyst Brett Knoblauch upgraded SoundHound AI inventory to impartial (maintain) from underweight (promote) whereas sustaining its worth goal of $4.90. This represents an upside of roughly 10% in comparison with the inventory’s closing worth on Wednesday.
The analyst had beforehand issued a uncommon double downgrade on SoundHound AI, primarily the results of its frothy valuation of 40 instances gross sales. Nevertheless, the analyst additionally cited a host of different considerations, suggesting that SoundHound AI is a dangerous inventory. The valuation has now contracted from 45 instances gross sales to 22 instances gross sales, with Knoblauch suggesting the draw back danger and upside promise at the moment are equal.
I nonetheless consider traders ought to train care. The identical dangers initially highlighted by the analyst are nonetheless in play, together with its opaque working mannequin, inadequate capital spending, and potential buyer losses.
There are different points. In its 2023 annual report, SoundHound AI admitted that it recognized “materials weaknesses in its inner management over monetary reporting,” which brought on the corporate to restate plenty of its monetary statements. It is a critical pink flag that may entice the eye of regulators.
I’ve additionally raised considerations up to now about how SoundHound accounts for its backlog. After administration “up to date” this metric, the backlog now contains “dedicated buyer contracts” and “potential income achievable,” which rely closely on administration assumptions.
Even after a big retracement, SoundHound AI is promoting for 22 instances gross sales however nonetheless hasn’t generated a revenue. Traders ought to train care with this unstable high-flyer.
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Danny Vena has no place in any of the shares talked about. The Motley Idiot has no place in any of the shares talked about. The Motley Idiot has a disclosure coverage.
SoundHound AI Inventory Has Room to Run After Its Crash, In line with 1 Wall Avenue Analyst. Is the Inventory a Purchase After a 50% Decline? was initially revealed by The Motley Idiot
