SoundHound AI stock is still up 136% in 2024 despite a big pullback. What comes next?
SoundHound AI (SOUN -8.93%) stock saw big sell-offs Thursday. The company’s share price ended the daily session down 8.9%, according to data from S&P Global Market Intelligence.
While there wasn’t any business-specific news behind the big valuation pullback, SoundHound’s valuation slipped in conjunction with an uptick in bearish sentiment that rocked the broader market and hit the tech sector particularly hard. Advanced semiconductors have made the unfolding artificial intelligence (AI) revolution possible and paved the way for some companies in the space to see explosive gains, but investors are worried that geopolitical risks could destabilize the chip industry.
Geopolitical pressures hit growth stocks hard today
Yesterday, Bloomberg Businessweek published an interview with former president and current presidential candidate Donald Trump. In the interview, Trump suggested that his administration could require Taiwan to pay for defense services and stated that the country had taken the U.S.’s semiconductor industry.
Due to the presence of Taiwan Semiconductor Manufacturing and other fabrication companies, Taiwan is hugely important for global chip production and tech supply chains. Many geopolitical analysts are concerned that China could invade or otherwise move to exert greater influence over the country. Advanced semiconductors are powering advances in AI, accelerated computing applications, and telecommunications, and access to high-performance chips has become a vital economic and national security issue.
Bloomberg also published a separate report yesterday suggesting that the Biden administration was considering introducing much stronger regulations to prevent advanced chips and processors from being exported to China. In particular, the U.S. government seems interested in limiting its geopolitical rival’s access to semiconductors used for AI and other accelerated computing applications.
SoundHound AI stock will likely continue to be highly volatile
The tense geopolitical situation poses some significant business and valuation risks for SoundHound AI. For example, SoundHound saw big gains last week after its voice-based operating system was rolled out across several vehicle brands in Europe. The software integrates OpenAI’s ChatGPT technology, which relies on advanced processors from Nvidia that are manufactured by TSMC in Taiwan.
Despite the recent pullback, SoundHound AI stock is still up roughly 136% in 2024. It also has a hugely growth-dependent valuation.
SOUN PS Ratio (Forward) data by YCharts. PS = price to sales.
SoundHound has yet to shift into delivering profits, and it trades at 23.4 times this year’s expected sales. The company has been growing at a rapid pace and generating AI-related excitement, but its valuation profile and other risk factors set the stage for the stock to see continued volatility.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.