The speech recognition specialist operates in a potentially huge market.
A key test will be whether users accept that they are no longer talking to a human.
SoundHound’s growth rate has been impressive, but its continued losses deserve attention.
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SoundHound AI (NASDAQ: SOUND) is a fairly popular artificial intelligence (AI) stock for its size. This is a roughly $5 billion company by market cap, making it relatively small. However, these smaller companies have the ability to grow quickly, which could lead to explosive returns.
SoundHound hasn’t had a great 2025, as its shares are down around 15% for the year. However, in October, the stock was up about 40% for the year. This suggests extreme volatility in SoundHound stock, which shouldn’t be surprising considering its size and popularity.
So can he return in 2026? Let’s find out.
Image source: Getty Images.
SoundHound AI combines audio recognition technology and generative AI. This is an important application of AI as it could be used to automate interactions between humans that do not take place in person. One of the biggest use cases for its technology so far has been in the restaurant business, as many restaurant operators are integrating its technology into drive-thru windows.
Another area where SoundHound products could offer significant value is any industry that has a significant customer service wing, such as healthcare, insurance, and financial services. If SoundHound can replace the thousands of customer service agents these companies employ, their product will be incredibly useful.
We are already seeing signs of global adoption of its products, as SoundHound announced that three of the top 10 global financial institutions purchased additional services during the third quarter and signed a contract with a French insurance company.
While SoundHound is finding success in multiple industries, the ultimate test will be whether the consumer accepts it. Up to this point, robotic customer service agents have not been of much help as they are configured to follow a specific chain of action. AI-powered generative service agents should be able to offer more flexibility and be more human-like.
Still, customers will have to accept that they are no longer talking to a human counterpart on the other end of the phone. If they don’t like this, SoundHound customers could have everyone who calls request a human operator instead of the generative AI agent. SoundHound AI’s product should be good enough that this doesn’t happen, but it’s a real concern.
However, with all the money customers spend on SoundHound AI, I suppose it could be a big hit if done right.
SoundHound’s revenue increased 68% year over year to $42 million in the third quarter. While it’s not a huge total, its growth rate is impressive. Management believes it can deliver organic growth of 50% or more for the “foreseeable” future, indicating strong growth ahead. We’ll see how long it can sustain its growth, but if SoundHound AI continues to grow at a rate of 50% or more throughout 2026, I’d be surprised if the stock isn’t a winner.
One element that could hinder its success is its high valuation. Despite having a banner year, SoundHound AI is still trading at 34 times sales.
SOUN PS Relationship Data by YCharts
Most software companies trade at 10 to 20 times sales, but those companies typically don’t grow at a 68% rate. I think this is a pretty reasonable valuation for SoundHound stock, and if it continues to deliver strong growth, the valuation is reasonable at its current level.
One issue SoundHound investors should pay attention to is its profound lack of profitability. In the third quarter, its operating loss totaled $116 million on $42 million in revenue. That means he lost almost triple what he won out of the gate. This worries many investors, but it doesn’t worry me as much because SoundHound is trying to capture market share in an incredibly important market. If SoundHound’s business is as successful as some believe it can be, these losses will be worth it. But he still has a lot of work to do.
Overall, I think SoundHound AI could have a strong 2026, but its success is tied to its continued rapid growth rate and the market’s risk appetite. If any of these fail, SoundHound stock will have a poor 2026.
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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool recommends SoundHound AI. The Motley Fool has a disclosure policy.
Is SoundHound a Top AI Stock for 2026? was originally published by The Motley Fool
