Nvidia's AI Stocks: Why SoundHound AI Plunged by 32% Last Week

Nvidia's (NVDA) artificial intelligence (AI) stocks have been a hot topic in the investment world, with the company's leadership in accelerated computing driving impressive growth. However, one of its AI stocks, SoundHound AI (SOUN), experienced a significant decline last week, dropping by 32%. This article explores the specific catalysts that contributed to SoundHound AI's stock price plummet and examines the company's valuation in comparison to other AI stocks.

SoundHound AI's 32% Decline: Specific Catalysts
SoundHound AI's stock price decline last week can be attributed to several specific catalysts:

1. Macroeconomic Risks: The Bureau of Labor Statistics' Job Openings and Labor Turnover Survey (JOLTS) data for November showed an unexpected increase in new job openings, raising concerns about inflation and triggering a sell-off in growth stocks like SoundHound AI. Additionally, rising U.S. Treasury bond yields contributed to the bearish market sentiment.
2. Geopolitical Risks: Reports that President-elect Trump was considering declaring a national emergency to quickly roll out his desired tariff policy raised concerns about potential trade wars and their impact on the company's growth prospects.
3. Competitive Concerns: The Consumer Electronics Show (CES) trade show spotlighted new artificial intelligence offerings from Nvidia and other tech players, highlighting the competitive risks SoundHound AI faces. Investors were concerned that these new players could move in on SoundHound AI's turf and curb its expansion opportunities.
4. Valuation Concerns: SoundHound AI's highly growth-dependent valuation (trading at roughly 34 times this year's expected earnings) made it vulnerable to sell-offs if positive catalysts failed to materialize or if the broader market turned bearish.

SoundHound AI's Valuation: Overvalued or Undervalued?
Based on the information provided, SoundHound AI's valuation can be compared to other AI stocks using the price-to-earnings (P/E) ratio. As of the latest data, SoundHound AI has a P/E ratio of approximately 30 times this year's expected sales. This is a highly growth-dependent valuation, which sets the stage for downside pressures if positive catalysts fail to arrive or fall short of expectations, or if the broader market turns bearish.

To compare this valuation with other AI stocks, we can look at the P/E ratios of Nvidia and Micron, two other prominent AI chip stocks:

* Nvidia has a P/E ratio of around 33 times next fiscal year's earnings, which is slightly higher than SoundHound AI's P/E ratio.
* Micron has a P/E ratio of around 12 times next fiscal year's earnings, which is significantly lower than SoundHound AI's P/E ratio.

While SoundHound AI's P/E ratio is higher than Micron's, it is lower than Nvidia's. This suggests that SoundHound AI is not currently overvalued compared to Nvidia but may be overvalued compared to Micron. However, it is essential to consider that SoundHound AI is a smaller company with a more growth-dependent valuation, which can lead to higher P/E ratios.

In conclusion, SoundHound AI's valuation is relatively high compared to some AI stocks but not excessively so when considering its growth prospects and the broader market's sentiment towards AI stocks. However, investors should be aware of the risks associated with a highly growth-dependent valuation and monitor the company's performance closely.



Primary Risks and Challenges for SoundHound AI in the AI Conversational Space
SoundHound AI faces several primary risks and challenges in the AI conversational space that impact its stock price:

1. Macroeconomic Risks and Geopolitical Uncertainty: SoundHound AI's stock has been sensitive to macroeconomic and geopolitical risk factors, such as inflation concerns and geopolitical tensions between the U.S. and China. The company's share price has seen outsized sell-offs in conjunction with rising macroeconomic and geopolitical risks, as investors become more risk-averse.
2. Rising Competition in the AI Space: SoundHound AI has emerged as an early leader in the conversational AI space, but it could soon face intensifying competitive pressures. New technologies from large tech players like Nvidia, such as agentic AI offerings, could encroach on SoundHound AI's turf and pose competitive risks.
3. Dependence on Key Partnerships and Customer Relationships: SoundHound AI's stock price has been influenced by announcements of new partnerships and service agreements with companies like Torchy's Tacos and Church's Texas Chicken. Dependence on these key partnerships and customer relationships could pose risks to the company's growth and stock price if these relationships sour or if customers find alternative solutions.
4. Market Expectations and Catalysts: SoundHound AI's stock price has been influenced by investor expectations surrounding potential news and announcements, such as those expected from the Consumer Electronics Show (CES). The company's share price has seen sell-offs when these expectations are not met, as was the case when Nvidia did not mention SoundHound AI in its CES keynote address.

In conclusion, SoundHound AI's 32% decline last week can be attributed to specific catalysts, including macroeconomic risks, geopolitical risks, competitive concerns, and valuation concerns. While the company's valuation may not be excessively overvalued compared to other AI stocks, investors should be aware of the risks associated with a highly growth-dependent valuation and monitor the company's performance closely. SoundHound AI faces several primary risks and challenges in the AI conversational space, which impact its stock price and require investors to remain vigilant.