SoundHound AI SOUN has had a difficult 2026 despite operating in one of the fastest-growing areas of artificial intelligence. The stock has plunged 34.9% year to date, underperforming the Zacks Computers - IT Services industry, which has declined 24.1%. It has also lagged the broader Zacks Computer and Technology sector and the S&P 500 Index, both of which have posted gains this year.
SOUN’s YTD Price Performance
The weakness reflects investor concerns over widening losses, negative cash flow and an uncertain path to profitability rather than slowing demand. While SoundHound continues to report strong revenue growth and expand its enterprise AI platform, the market has become increasingly focused on profitability and cash generation. With the stock now trading well below its recent highs, investors are left wondering whether this represents a buying opportunity or a value trap.
SoundHound’s Revenue Momentum Remains Strong
Fundamentally, SoundHound continues to execute well on the commercial front. First-quarter 2026 revenues increased 52% year over year to a record $44.2 million. More encouragingly, excluding acquisitions, the company's core automotive and IoT AI business grew 88%, showing that underlying demand remains robust rather than acquisition-driven.
Enterprise AI has become the largest contributor to revenues as adoption expands across financial services, healthcare, restaurants, retail, insurance, telecommunications and technology. Management highlighted growing customer diversification, with no single customer contributing more than 10% of quarterly revenues.
The company also reaffirmed its full-year 2026 revenue guidance of $225-$260 million, suggesting management remains confident about demand despite macroeconomic uncertainty. The Zacks Consensus Estimate currently projects revenue growth of roughly 38% in 2026, followed by another 15.8% increase in 2027.
New Products and Acquisitions Expand the Opportunity
SoundHound is steadily transforming itself from a voice assistant provider into a broader enterprise conversational AI platform.
One of the biggest developments is OASYS, the company's new self-learning orchestrated agentic AI platform. OASYS enables businesses to automatically build, deploy, manage and continuously improve AI agents across voice, chat, web, vehicles, kiosks and other customer touchpoints. The platform reduces implementation time from months to minutes while helping customers automate increasingly complex workflows.
Another important catalyst is the planned acquisition of LivePerson, expected to close during the second half of 2026. The transaction combines SoundHound's proprietary voice and agentic AI capabilities with LivePerson's digital messaging platform, creating a unified omnichannel conversational AI business.
Management believes the combined company will have relationships with 25 Fortune 100 companies, operations across more than 30 countries and a revenue opportunity approaching $500 million from the existing customer base alone. The acquisition is also expected to accelerate the path toward profitability through cross-selling opportunities and operating synergies.
Meanwhile, customer momentum remains encouraging. During the quarter, SoundHound expanded relationships across banking, healthcare, retail, utilities, automotive and technology. The company also broadened its partnership with Casey's, where its AI ordering platform now supports more than 2,600 stores after handling over 21 million customer interactions.
Losses and Cash Burn Continue to Concern Investors
Despite strong revenue growth, profitability remains the biggest concern. First-quarter 2026 GAAP gross margin declined to 31.1% from 36.5% a year earlier, while adjusted EBITDA remained deeply negative. Although management attributed part of the margin pressure to nonrecurring vendor-related costs, investors remain cautious about the company's ability to translate revenue growth into sustainable earnings.
Operating cash flow also moved in the wrong direction. Net cash used in operating activities increased to approximately $26 million during the first quarter from about $19 million a year ago, while total cash declined to roughly $216 million from the end of 2025. Although SoundHound carries no debt, continued cash burn could eventually require additional financing if profitability takes longer than expected.
Management expects cost synergies from previous acquisitions and infrastructure optimization to improve expenses over the coming quarters. However, the company is simultaneously increasing investments in proprietary AI foundation models to support OASYS. While these investments may strengthen its competitive position over time, they could keep profitability under pressure in the near term.
SOUN Stock’s Valuation Still Requires Execution
Even after the sharp decline this year, SoundHound's valuation leaves little room for operational disappointment. The stock currently trades at 11.11X forward 12-month sales, close to the Zacks Computers – IT Services industry average of 11.52X. Although the recent correction has reduced some valuation pressure, investors are still paying a meaningful multiple for a company that remains unprofitable and continues to generate negative operating cash flow.
SOUN’s P/S Ratio (Forward 12-Month) vs. Industry
Estimate revisions also provide limited support. Over the past 60 days, the Zacks Consensus Estimate for 2026 earnings has remained unchanged at a loss of 18 cents per share, wider than last year's loss of 13 cents. Analysts also expect another net loss of 17 cents per share in 2027, indicating profitability is still some distance away.
SOUN Stock’s EPS Estimate
SOUN Stock’s Revenue Estimate
Unless the company demonstrates sustained margin improvement and stronger cash generation, valuation upside may remain constrained.
Assessing SoundHound's Competitive Position
Competition in conversational AI continues to intensify. Cisco Systems CSCO competes with SoundHound through its enterprise conversational AI, Webex AI platform, voice assistants and contact center automation offerings. Cisco benefits from a much larger installed enterprise customer base, stronger profitability and a lower forward price-to-sales multiple of 6.96. Cisco shares have gained 54.5% YTD, highlighting stronger investor confidence.
Five9 FIVN remains another important competitor in AI-powered cloud contact centers, intelligent voice bots and customer engagement automation. Five9 continues expanding enterprise AI capabilities while trading at only 1.49X forward sales. Five9 shares have advanced 28.8% this year, significantly outperforming SoundHound despite operating in a similar enterprise customer environment.
Salesforce CRM also competes aggressively through Agentforce, enterprise AI agents and AI-powered customer service automation integrated with its CRM platform. Salesforce's vast enterprise ecosystem gives it meaningful scale advantages across customer engagement. Although Salesforce shares have lost 35.3% year to date, the company trades at only 2.92X forward sales and generates consistent profits, making Salesforce a financially stronger competitor than SoundHound.
Should Investors Buy, Hold or Sell SOUN Stock?
SoundHound continues to build an attractive long-term growth story. Enterprise adoption remains healthy, new products like OASYS broaden its addressable market, customer wins continue across industries, and the planned LivePerson acquisition could significantly strengthen its competitive position.
However, investors must balance those positives against persistent losses, higher cash burn, declining margins and an uncertain timeline toward sustainable profitability. The market's reaction to recent earnings shows that investors are now rewarding AI companies that can combine strong growth with improving financial discipline rather than growth alone.
With earnings estimates still projecting losses over the next two years and concerns about cash generation remaining unresolved, caution appears warranted. That view is consistent with SoundHound's current Zacks Rank #4 (Sell). Until the company delivers clearer evidence of improving margins and a path toward consistent profitability, existing investors may prefer to remain cautious, while prospective investors may find better risk-reward opportunities elsewhere in the AI software space.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Beyond Nvidia: AI's Second Wave Is Here
The AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.See Stocks Now >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
SoundHound AI, Inc. (SOUN): Free Stock Analysis Report
Salesforce, Inc. (CRM): Free Stock Analysis Report
Cisco Systems, Inc. (CSCO): Free Stock Analysis Report
Five9, Inc. (FIVN): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research