SoundHound AI: Buy, Sell, or Hold?

As of this writing, it's been about three stock-trading days since I saw SoundHound AI (NASDAQ: SOUN) soaring like a meme stock, and warned that the sudden price jump wouldn't last. "This is not the right time to buy SoundHound AI stock," I said.

Nearly a full market week later, the stock has gained another 8%. Was I wrong about the speculative nature of this artificial intelligence (AI) expert's stock jump?

Why SoundHound AI's stock is soaring this week

SoundHound AI's stock is still soaring because the meme stock action hasn't stopped. At least two metrics point in that direction:

• SoundHound AI averages about five comments a day on the r/WallStreetBets Reddit (NYSE: RDDT) channel. The post count rose to 22 last Thursday and stayed aloft over the weekend. And it must be noted that most of these Reddit posts are very bullish, urging readers to buy a lot of SoundHound AI stock.
• As a result, the stock's trading volume soared and stayed high. The current daily volume is about triple the normal trading interest. This unusual trading volume will probably stick around about as long as the flood of Reddit posts keeps promoting this stock.

SOUN Volume data by YCharts

That's the bad news -- SoundHound AI's stock is rising for all the wrong reasons. This price jump is all about social media attention in an impressive market-moving scheme based on a large number of small trades.

On that basis, I would still recommend leaving that "buy" button alone. I don't mind paying a premium for a soaring stock, as long as the high price is based on a solid business. Pure speculation gains are better left untouched, because they are sure to fade out as soon as the online posts die down.

A closer look at SoundHound AI's actual business prospects

And now it's time for some good news.

It's OK to buy SoundHound AI right now, with or without a 32% price gain in less than a week. You see, the meme lords actually picked a strong long-term growth idea this time.

SoundHound AI addresses a very large and mostly unexplored market. It relies on decades of unique AI development to interpret voice commands with extraordinary accuracy. This ability is crucial for drive-through ordering systems, in-car infotainment controls, voice-driven phone menus, and much more. Monetizing this opportunity should deliver great investor returns in the long run, even if you may have overpaid a bit for your SoundHound AI shares.

That's not empty talk, either. This company can back up its impressive ambitions with real business results.

For example, SoundHound AI just reported third-quarter earnings. Revenues jumped 89% year over year to $25.1 million. Adjusted net losses shrank fro $0.06 to $0.04 per share. Encouraged by a wider market reach and many new household-name customers, management boosted their full-year revenue guidance by 4% and the next-year revenue outlook by 10%. And the full-year sales are expected to double in 2025.

Timing your SoundHound AI investment

So yeah, this little company is going places and it's not too late to jump aboard the SoundHound AI bandwagon. You might be a happier investor if you picked up a few shares at a lower price, but your portfolio should do just fine even if you started your SoundHound AI position at a temporarily inflated stock price. You can always be prepared to grab a few more shares if and when the meme-stock boost fades out.

And if you haven't taken any action on this stock yet, I'd recommend a few days of patient waiting on the sidelines. Taking your first steps into SoundHound AI ownership should be more comfortable at a somewhat lower buy-in price, and that's probably coming up fairly soon. Those massive torrents of social media posts usually don't last very long, and neither do their market effects. In other words, SoundHound AI looks like a great stock to hold in the long run, but you should probably pounce on a lower stock price in the near future.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $23,529!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $42,465!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $441,949!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of November 11, 2024

Anders Bylund has positions in SoundHound AI. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.