ANKARA, TURKIYE – AUGUST 27: In this photo illustration, Amelia logo is being displayed on a mobile phone screen in front of a monitor displaying SoundHoundAI logo in Ankara, Turkiye on August 27, 2024. (Photo by Mustafa Hatipoglu/Anadolu via Getty Images)
Anadolu via Getty Images
SoundHound AI (NASDAQ: SOUN), a voice AI platform that helps businesses deliver conversational AI experiences, has certainly attracted investor interest with its AI-led growth narrative. However, the stock’s history of sharp swings and recent market setup point to meaningful downside risk. The recent 10% drop on August 19, as investors took profits across growth names, underscores SOUN’s sensitivity to shifts in market sentiment.
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Extreme Historical Volatility
SoundHound’s history shows a pattern of severe drawdowns during periods of market stress. Prior episodes offer a sober reference point for investors:
- 2022 Inflation Crisis: SOUN fell over 90% while the S&P 500 declined just 25%.
- 2025 Tariff Correction: The stock tumbled 65% from January highs of $21 to April lows of $7, far exceeding the broader market’s 19% drop.
This volatility reflects SOUN’s profile as a high-beta growth name. With a beta near 3, SoundHound tends to move more than three times the broader market in both directions. See – Buy or Fear SOUN Stock?
Fundamental Concerns Mounting
Several fundamental pressures could deepen the downside:
- Profitability Challenges: Despite revenue growth, SoundHound continues burning cash with persistent losses. The inability to reach profitability while scaling operations raises questions about long-term sustainability.
- Credibility Questions: Recent allegations of misleading reporting, including concerns about inflated goodwill, weigh on credibility and can heighten perceived risk among institutions.
- Valuation Disconnect: The current price-to-sales multiple of 40 may not align with fundamentals. With shares trading well above historical norms relative to revenue and no clear profitability timeline, a reset looks plausible.
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Market Structure Risks
Structural dynamics could accelerate downside moves:
- Growth Rotation: If macro conditions favor value, growth stocks like SOUN often face profit-taking and de-risking.
- AI Sector Saturation: Intensifying competition in voice AI from well-funded tech giants could compress margins and temper growth expectations.
- Liquidity Concerns: In risk-off phases, smaller-cap growth names can see amplified selling due to thinner liquidity and forced institutional deleveraging.
Recession Scenario Impact
A broader downturn could pressure key customer segments:
- Automotive Slowdown: Carmakers may delay tech upgrades amid uncertainty.
- Restaurant Industry Stress: QSR partners could trim technology budgets to preserve cash.
- Enterprise Budget Cuts: Corporates may postpone voice AI deployments.
The Path to $2
A 90% slide from recent peaks of about $20 implies a price near $2 per share. While extreme, similar moves have occurred. A deep recession could spark widespread de-risking, hitting high-beta growth stocks hardest. Earnings disappointments—missing revenue targets or pushing out profitability—can quickly erode confidence and prompt institutional selling. Heightened competition from large tech companies could also threaten SoundHound’s positioning and growth outlook. If sentiment shifts away from AI and growth toward defensive sectors, SOUN’s high-volatility profile leaves it exposed. Finally, in a liquidity crunch, institutions often sell their most volatile holdings first—stocks like SOUN can bear the brunt.
The Verdict
SoundHound AI operates in an attractive market, but its shares carry exceptional downside risk. The mix of extreme volatility, unproven profitability, and sentiment sensitivity creates conditions for severe drawdowns. History shows SOUN can fall 90% during market stress—a pattern that could recur if economic or sector headwinds build. This analysis zeroes in on downside risk and complements our separate assessment of upside drivers. For investors, position sizing and risk controls are essential with such high-volatility profiles. We apply a risk framework when constructing the Trefis High Quality (HQ) Portfolio, which, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks have delivered better returns with less risk versus the benchmark—less of a roller-coaster ride—as shown in HQ Portfolio performance metrics.