SoundHound AI (NASDAQ:SOUN) has been a prominent success story for investors this year, attracting attention for its expertise in voice recognition technology and securing a significant investment from AI giant Nvidia. However, recent developments have cast a shadow on the company’s performance, with the shares pulling back by 43% from their peak due to a short report that raised concerns about the company’s integrity.
Cantor analyst Brett Knoblauch, while not making direct accusations, has expressed doubts about SoundHound AI’s current valuation. Knoblauch highlights several factors that contribute to his concerns, including the company’s early stage of development, lack of transparency in its operating model, decelerating organic growth, absence of capital expenditure, loss of customers, and growing competition from established tech players. Given these factors, Knoblauch believes that SoundHound AI’s current valuation is difficult to justify and sees more downside risk than upside at current levels.
Knoblauch also addresses the issue raised in the short report regarding last year’s revenue. It appears that some of the revenue was generated from customers who paid a one-time fee to terminate their relationship with SoundHound AI. The company categorized this as a “contract modification” and included the revenue in its product royalties. Knoblauch suggests that the German automotive company involved in this contract modification may be Mercedes-Benz, which wanted to switch to OpenAI’s ChatGPT technology for its infotainment system instead of using SoundHound AI’s product.
Another concerning factor is the recent insider selling of SoundHound AI’s shares. While some selling is expected after a significant increase in stock price, the volume of insider selling raises concerns. It suggests that the recent surge in share price may have become overextended, prompting insiders to cash in on their holdings.
In light of these issues, Knoblauch believes that a downgrade is warranted. He has shifted his rating on SoundHound AI from Overweight (Buy) to Underweight (Sell) and revised his price target downward from $5.80 to $4.90, implying that the shares are overvalued by approximately 15%.
However, it is important to note that Knoblauch’s bearish take is not shared by all analysts. Four other analysts rate SoundHound AI shares as Buy, and one analyst recommends a Hold, resulting in a Moderate Buy consensus rating. Based on the average target price of $7.36, it is anticipated that shares will command a 27% premium a year from now.
Frequently Asked Questions (FAQ)
What is SoundHound AI?
SoundHound AI is a company specializing in voice recognition technology within the field of artificial intelligence. It provides solutions for various applications, including voice assistants and natural language processing.
Who invested in SoundHound AI?
SoundHound AI received a significant investment from Nvidia, a prominent player in the AI industry.
Why did SoundHound AI’s shares pull back?
The shares of SoundHound AI experienced a decline due to a negative short report that raised concerns about the company’s credibility and accused it of deceptive practices.
What are the concerns about SoundHound AI’s valuation?
Analysts have expressed doubts about the current valuation of SoundHound AI due to factors such as the company’s early stage of development, lack of transparency in its operating model, decelerating organic growth, loss of customers, and increasing competition from larger tech companies.
Why did insiders sell SoundHound AI shares?
Insiders sold SoundHound AI shares, which is not unusual after a significant rise in stock price. However, the volume of insider selling raised concerns about the stock’s overextension.
What are the recommendations for SoundHound AI shares?
While one analyst has downgraded SoundHound AI shares to Sell, four other analysts rate them as Buy, and one analyst recommends a Hold. The average target price suggests a 27% premium for the shares over the next year.
Sources:
TipRanks – https://www.tipranks.com/
The sound recognition industry has been seeing significant growth and investment in recent years, with companies like SoundHound AI at the forefront. SoundHound AI specializes in voice recognition technology within the field of artificial intelligence, providing solutions for voice assistants and natural language processing. The company has gained attention from investors, including a notable investment from AI giant Nvidia, which has further solidified its position in the market.
However, recent developments have cast doubts on SoundHound AI’s performance and integrity. A short report triggered a 43% pullback in the company’s shares from their peak. Cantor analyst Brett Knoblauch has expressed concerns about the company’s current valuation, citing several factors. These factors include the company’s early stage of development, lack of transparency in its operating model, decelerating organic growth, absence of capital expenditure, loss of customers, and growing competition from established tech players.
Knoblauch also addresses an issue raised in the short report regarding last year’s revenue. It appears that some of the revenue was generated from customers who paid a one-time fee to terminate their relationship with SoundHound AI. The company categorized this as a “contract modification” and included the revenue in its product royalties. Knoblauch suggests that the German automotive company involved in this contract modification may be Mercedes-Benz, which decided to switch to OpenAI’s ChatGPT technology for its infotainment system instead of using SoundHound AI’s product.
Another concerning factor is the recent insider selling of SoundHound AI’s shares. While some selling is expected after a significant increase in stock price, the volume of insider selling raises concerns about the stock’s overextension. This suggests that insiders may believe the recent surge in share price is not sustainable and have decided to cash in on their holdings.
Considering these issues, Knoblauch has downgraded his rating on SoundHound AI from Overweight (Buy) to Underweight (Sell). He has also revised his price target downward from $5.80 to $4.90, implying that the shares are overvalued by approximately 15%.
It is worth noting that not all analysts share Knoblauch’s bearish take on SoundHound AI. Four other analysts rate the company’s shares as Buy, and one analyst recommends a Hold, resulting in a Moderate Buy consensus rating. The average target price of $7.36 suggests a 27% premium for the shares over the next year.
Given the dynamic nature of the industry and the various factors at play, it is crucial for investors to carefully evaluate the risks and potential of SoundHound AI before making any investment decisions.
Sources:
TipRanks – https://www.tipranks.com/currencies/soundh
The source of the article is from the blog dk1250.com