This 12 months has been a nonstop thrill trip for SoundHound AI (NASDAQ: SOUN) traders. After kicking off 2024 with a 23% loss by Feb. 5, the factitious intelligence (AI) and voice recognition specialist reversed course, notching 323% positive factors by March 15. It then turned south, dropping half its worth as of market shut on Wednesday. After such a whiplash-inducing trip, the inventory remains to be up 112% because the 12 months 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 occasions gross sales. Nevertheless, the analyst additionally cited a number of different considerations, suggesting that SoundHound AI is a dangerous inventory. The valuation has now contracted from 45 occasions gross sales to 22 occasions gross sales, with Knoblauch suggesting the draw back danger and upside promise are actually equal.
I nonetheless imagine 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 about the corporate to restate various its monetary statements. This can be a severe crimson flag that may appeal to the eye of regulators.
I’ve additionally raised considerations prior 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 major retracement, SoundHound AI is promoting for 22 occasions gross sales however nonetheless hasn’t generated a revenue. Traders ought to train care with this risky 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 response to 1 Wall Avenue Analyst. Is the Inventory a Purchase After a 50% Decline? was initially printed by The Motley Idiot