On Wednesday, SoundHound AI Inc. (NASDAQ: NASDAQ:SOUN) experienced a downgrade in its stock rating by a Cantor analyst. The firm shifted its stance from "Overweight" to "Underweight" and concurrently lowered the 12-month stock price target for SoundHound AI from $5.80 to $4.90.
The new price target reflects a valuation based on 15 times the company's estimated 2025 enterprise value to sales ratio, a decrease from the previously used multiple of 17 times.
The downgrade was influenced by several factors concerning SoundHound AI's business prospects. The analyst highlighted the early stage of the company's development, the lack of transparency in its operating model, and a slowdown in organic growth. Moreover, concerns were raised about the company's minimal capital expenditure spending, the loss of customers, and intensifying competition from larger technology firms.
According to the analyst's assessment, SoundHound AI's current market valuation, which stands at 35.7 times and 24.6 times its estimated 2024 and 2025 enterprise value to sales ratios respectively, is challenging to support.
The firm's evaluation suggests that there is a greater potential for the stock's value to decrease rather than increase given the current market conditions and company performance.
In outlining potential scenarios, the analyst presented a bear case and a bull case for SoundHound AI's valuation. The bear case, based on a valuation of 5 times the company's estimated 2025 enterprise value to sales, implies a stock value of $1.70. On the other hand, the bull case assumes a 20 times multiple and indicates a potential value of $7.60.
The analysis concluded with a cautious outlook for SoundHound AI, emphasizing the perceived risks that outweigh the potential for gains at the company's present valuation levels. The revised price target and stock rating reflect the firm's updated expectations for the company's financial performance and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.