SoundHound(NASDAQ: SOUN) stock sank in Thursday's trading. The company's share price ended the daily session down 15.8%, according to data from S&P Global Market Intelligence.
SoundHound stock fell following a bearish turn on the company from analysts at Cantor Fitzgerald. The firm published a note on the company this morning and downgraded its rating on the stock from buy to sell.
SoundHound stock continues to see volatile trading
Cantor Fiztgerald's downgrade on SoundHound stock was notable for multiple reasons. For starters, the firm's analysts downgraded the stock directly from buy to sell -- completely skipping over the intermediate neutral rating. The company also issued a one-year price target of $4.90 per share on the stock, suggesting additional downside of roughly 27% from its price at Thursday's market close.
Cantor's downgrade on the stock followed a scathing short seller's report published by Capybara Research on Tuesday. In its report Capybara said that it believed that SoundHound's Houndify was a commodity product with unremarkable technology.
The short seller indicated that SoundHound had no real advantage compared to resource-rich competitors, including Amazon, Alphabet, and Microsoft, and it also suggested that the audio-technology company was hiding the loss of big customers, including Netflix, Mercedes-Benz, and Deutsche Telekom. Capybara said it believed SoundHound stock was worth $1 per share or less.
Is the bearish swing actually a buying opportunity?
Despite today's sell-off, SoundHound AI stock is still up 215% across 2024's trading. Valued at roughly 30 times this year's expected sales, it's probably fair to say that the company is one of the riskiest hot AI stocks on the market right now.
SOUN PS Ratio (Forward) data by YCharts.
SoundHound increased its revenue roughly 80% in last year's fourth quarter and is guiding for sales to increase approximately 53% this year. The company also said that it ended last year with a cumulative bookings and subscriptions backlog of $661 million -- roughly doubling compared to the end of the previous year.
On the other hand, the company noted that "subscriptions backlog refers to potential revenue achievable for the company" and assumes that sales from existing customers will scale along a particular trajectory. SoundHound is also still operating at a loss, and it's not clear when the business might shift into profitability.
As it stands, SoundHound AI stock is still too risky for most investors even after today's pullback. The company's outlook remains highly uncertain, and the dramatic gains it scored this year suggest there's still plenty of downside risk.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Netflix. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
