Down 60% From Its 52-Week High, Is SoundHound AI a Buy Right Now?

Earlier this year, eager investors loaded up on shares of SoundHound AI (NASDAQ: SOUN) after learning that chipmaker Nvidia had also invested in it. The revelation of that investment instantly raised SoundHound's profile, with many investors seeing it as the next big growth opportunity in the artificial intelligence (AI) space.

But after that initial surge in value, SoundHound has been struggling to generate excitement. In the past three months, the stock has fallen by more than 35%. While it's far from its low, the stock is down more than 60% from its 52-week high of $10.25. Is the stock likely to head even lower, or could now be the opportune time to invest in SoundHound?

Trading volumes are down significantly

A good way to gauge the level of interest in a stock is to look at its trading volumes to see how many shares are changing hands each day. At its peak, over 300 hundred million shares of SoundHound traded in a single day. Nowadays, however, that has drastically declined, closer to where the stock was before all the Nvidia-fueled hype.

SOUN Volume

There haven't been any big developments moving the stock. And with many other AI stocks to choose from, investors appear to have moved on from SoundHound AI in recent months.

The business is full of both risks and opportunities

There is a lot of potential for SoundHound's voice-AI platform to fill the growing desire among companies for software that can engage in "conversation" with their customers. It has partnered with many top brands around the world, including car manufacturers and restaurant chains.

For example, SoundHound can help expedite and improve the ordering process at drive-thrus. And with its platform supporting 25 languages, the company is sitting on a massive opportunity. Based on a 2020 report from Juniper Research, its total addressable market this year could top more than $140 billion.

SoundHound, however, is still in an early growth stage. Although its sales rose more than 70% year over year in Q1, the business is unprofitable and burning through cash. It's going to need to spend money to grow, and that creates risk for investors because if it has to issue shares, that means it's diluting existing shareholders, and secondary offerings normally lead to sharp sell-offs. Back in April, the company announced plans for a $150 million stock offering to bolster its finances.

In the past four quarters, SoundHound incurred a net loss of $97 million and burned through just under $76 million in cash through its operating activities. And as of the end of March, it had $226 million in cash and equivalents on its books. Given the company's financial situation, it's highly probable that more stock offerings or debt sales will be necessary.

Should you buy SoundHound AI stock?

SoundHound AI became a hot stock early this year after Nvidia revealed its longstanding investment in it. But as investors have started to see the problems and risks within the business, the excitement has waned. Its recent sell-off by no means suggests that the stock is destined to go back up anytime soon.

If you're a risk-averse investor, you may be better off looking at AI stocks with better fundamentals. However, SoundHound AI could be a suitable option for you if you're willing to take on the uncertainty that lies ahead for the business, and if you're prepared for what's likely to be a bumpy ride with the stock.

Should you invest $1,000 in SoundHound AI right now?

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.