What Happened?
Shares of voice AI recognition company SoundHound (NASDAQ: SOUN) jumped 26.7% in the afternoon session after the company reported second-quarter results that featured a massive revenue beat, though profitability fell short of expectations. The voice artificial intelligence firm announced revenue of $42.7 million, a 217% increase year-over-year, which easily surpassed Wall Street's estimates of $32.5 million. However, the strong top-line growth came at a cost. The company's GAAP loss of $0.19 per share was significantly wider than the anticipated loss of $0.09. This trend was also reflected in its operating margin, which worsened to negative 183%. Investors appeared to focus on the impressive sales growth and strong billings, with the stock trading up over 23% following the release.
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What Is The Market Telling Us
SoundHound AI’s shares are extremely volatile and have had 88 moves greater than 5% over the last year. But moves this big are rare even for SoundHound AI and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 4 days ago when the stock gained 6.1% on the news that the Software as a Service (SaaS) sector rebounded following the sell-off in the previous trading session as a weaker-than-expected U.S. jobs report increased the probability of a Federal Reserve interest rate cut. The July Nonfarm Payrolls (NFP) report showed the U.S. economy added only 73,000 jobs, significantly below the 110,000 forecast. This, combined with downward revisions for May and June, signaled a cooling labor market to investors. In response, market expectations for a September interest rate cut by the Federal Reserve surged from roughly 40% to over 80%. A potential rate cut is generally favorable for growth sectors like technology and SaaS, as lower rates can increase the present value of their future earnings, boosting stock valuations.
SoundHound AI is down 32.5% since the beginning of the year, and at $13.62 per share, it is trading 43.8% below its 52-week high of $24.23 from December 2024. Investors who bought $1,000 worth of SoundHound AI’s shares at the IPO in April 2022 would now be looking at an investment worth $1,815.
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