One Wall Street analyst thinks SoundHound AI stock can recover. Is the Stock a Buy After 50% Drop?  

Investors in SoundHound AI (NASDAQ: SOUN) have had a roller coaster ride of a year. The expert in artificial intelligence (AI) and speech recognition started 2024 out poorly, losing 23% by February 5th.  

However, by March 15th, they had turned things around, making gains of 323%. After that, it started falling, and by Wednesday's market close, it had lost half its value. The stock is still up 112% year-to-date despite the terrifying journey. The drop is seen as a positive thing by one Wall Street analyst.  

Decreased danger, but not eliminated   The stock of SoundHound AI was raised from underweight (sell) to neutral (hold) by Brett Knoblauch of Cantor Fitzgerald, who also maintained the stock's price target of $4.90. When compared to the stock's closing price on Wednesday, this signifies a gain of around 10%.  

Due in large part to SoundHound AI's inflated valuation of 40 times sales, the analyst had already given the company an unusual double downgrade. Nevertheless, the analyst raised numerous more issues, implying that SoundHound AI is a stock with a high level of risk. According to Knoblauch, the downside risk and potential promise are now equal, and the valuation has shrunk from 45 times sales to 22 times sales.

I maintain my stance that investors ought to be cautious. Its unclear business model, inadequate capital expenditure, and possible client losses—all of which the analyst had previously mentioned—remain relevant today.  

Other problems exist. In their 2023 annual report, SoundHound AI acknowledged finding "material weaknesses in its internal control over financial reporting," which led to the restatement of multiple financial figures. This should raise red flags and get the attention of authorities.  

Regarding SoundHound's backlog accounting, I have previously voiced my concerns. Included in the backlog after management "updated" this statistic are items like "committed customer contracts" and "potential revenue achievable," both of which are highly dependent on management's assumptions.  

Despite a considerable pullback, SoundHound AI is still not profitable, selling for 22 times sales. Proceed with caution while investing in this very unpredictable stock.  

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