SoundHound AI's Momentum Is Showing Weaknesses As Insiders Sell

seekingalpha03-25

SOUN has recorded an impressive rally as NVDA discloses its stake and the SaaS company guides double digits growth through 2025.With expanding multi-year backlog and narrowing losses, we can ...

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href=https://seekingalpha.com/article/4680123-soundhound-ai-momentum-showing-weaknesses-insiders-sell><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>SOUN has recorded an impressive rally as NVDA discloses its stake and the SaaS company guides double digits growth through 2025.With expanding multi-year backlog and narrowing losses, we can ...</p>\n\n<a href=\"https://seekingalpha.com/article/4680123-soundhound-ai-momentum-showing-weaknesses-insiders-sell\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU0072462426.USD","symbol_name":"贝莱德全球配置 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stake and the SaaS company guides double digits growth through 2025.With expanding multi-year backlog and narrowing losses, we can understand why opportunistic investors have piled in, hoping for the great upside ride.However, we believe that SOUN is over-stretched here, with any earning misses and slowing growth likely to bring forth painful corrections.At the same time, the stock records elevated short interest, with insiders also unlocking most of their gains at the recent peak.As a result of the potential volatility, we do not recommend anyone to chase here.The SOUN Investment Thesis Is Overly Inflated HereThanks to OpenAI's launch of ChatGPT on November 30, 2022, it is apparent that we are in a new super cycle of cloud computing as more consumers demand generative AI capabilities across different models.And here enters, SoundHound AI, Inc. (NASDAQ:SOUN), a company that develops and offers voice AI technology with Large-Language Model integration as a proprietary SaaS in both cloud-native and hardware-embedded platforms.SOUN's 2026 TAMWith the SOUN management strategically patenting much of their technologies, it is unsurprising that the AI company already boasts numerous global partnerships, with an extremely ambitious $160B in 2026 TAM across different industries.SOUN's Three Revenue Generation PillarsAt the same time, SOUN established three different monetization strategies to better penetrate different industries, particularly in the next-gen EVs, Restaurants, and e-commerce/ advertising markets, as more seek to optimize their operations and boost their growth.As a result, the increasing demand for SOUN's services is undeniable, as reported by the management in the FQ4'23 earnings call, with revenues of $17.14M (+29.2% QoQ/ +80.4% YoY) and adj EBITDA of -$3.67M (+49.7% QoQ/ +80.4% YoY).Otherwise, FY2023 also brought forth excellent numbers at $45.87M (+47.3% YoY) and -$35.89M (+50.7% YoY), respectively.For now, the SOUN management has also offered an aggressive FY2024 revenue guidance of $70M at the midpoint (+52.5% YoY), with FY2025 revenues of over $100M (+42.8% YoY) and adj EBITDA profitability then.We believe that much of the management's confidence stems from the growing cumulative subscriptions and bookings backlog of $661M by the latest quarter (+93.8% QoQ/ +99% YoY), with a \"total five-year duration.\"NVDA's 13F FilingSeeking AlphaAt the same time, much of the recent hype surrounding SOUN is attributed to the timely 13F filing from Nvidia (NVDA) on February 14, 2024, in which the Jensen Huang led company is apparently a stakeholder in multiple companies, SOUN included.While NVDA's 1.73M shares comprise a miniscule portion of SOUN's overall share count of 273.22M as of February 26, 2024, it is undeniable that the impact has been largely positive, with the latter also rallying by +294.2% at its peak.The Consensus Forward EstimatesTikr TerminalAs a result of the great visibility into its upcoming pipeline and NVDA's (supposed) endorsement, we can understand why the consensus have exuberantly raised their forward estimates with SOUN expected to generate an exemplary top-line expansion of +49.7% through FY2025.This is compared to the previous estimates of +44.4% and historical growth of +56.3% between FY2019 and FY2023.However, readers must also note that SOUN is unlikely to generate positive Free Cash Flow profitability any time soon, based on the -$13.93M reported in FQ4'23 (+32.9% QoQ/ -32.2% YoY) and -$68.6M in FY2023 (+28% YoY).This implies that the company's cash burn may continue for a little longer, with a further deterioration in its balance sheet very likely.For reference, SOUN reported a declining net cash position of $10.95M in FQ4'23, compared to $12.84M in FQ3'23, $49.33M in FQ2'23, and -$9.05 in FQ4'22, implying that further dilutive capital raises and/ or debt reliance may be in the horizon.At the same time, its share count is relatively bloated here, with an overall share count of 273.22M as of February 26, 2024 (+16.03M from FQ4'23 levels and +111.2M since its IPO in April 28, 2022).As a result of the inherent lack of profitability and consistent erosion of shareholder equity, we are uncertain if it is wise to chase SOUN here.So, Is SOUN Stock A Buy, Sell, Or Hold?SOUN 2Y Stock PriceTradingViewWhile SOUN may have neared its IPO price of $10s in the March 2024 top, it is also apparent that the stock is unable to hold on to its recent gains, with it currently retesting the support levels of $8s.We believe that much of the exuberance is attributed to opportunistic investors looking for another small cap AI stock with a great upside potential.The same has been observed in Super Micro Computer, Inc. (SMCI), which has charted an impressive YTD returns of +209% and 1Y returns of +791%, well outperforming the wider market at +8.5% and +31%, respectively.SOUN ValuationsSeeking AlphaHowever, it also goes without saying that it is too late here.As a result of the double digit growth trend, a massive premium has been embedded in SOUN's FWD EV/ Sales valuation of 36.78x, compared to the 2023 mean of 10.62x and the sector median of 2.87x.Even if we are to compare its valuations compared to other generative AI SaaS stocks, such as C3.ai (AI) at FWD EV/ Sales of 8.87x, BigBear.ai Holdings, Inc. (BBAI) at 3.46x, and Palantir (PLTR) at 18.40x, it is apparent that SOUN is overstretched here, offering interested investors with a minimal margin of safety.At the same time, it remains to be seen if SOUN is able to maintain this upward momentum, since the premium valuations come with great expectations, with any earning misses and/ or underwhelming forward guidance likely to bring forth painful corrections.Readers must also note that insiders have taken this chance to unlock much of their gains at the recent peak, with more volatility very likely as the stock records elevated short interest of approximately 14.6% at the time of writing.As a result of the potential capital losses, we do not recommend anyone to add here, with us preferring to rate the SOUN stock as a Hold (Neutral) here.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":6,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2421788333"}