SoundHound AI (SOUN)

Voice AI technology company SoundHound AI (NASDAQ:SOUN) beat Wall Street’s revenue expectations in Q4 CY2025, with sales up 59.4% year on year to $55.06 million. Its GAAP loss of $0.03 per share was 69.1% above analysts’ consensus estimates.

Company Overview

Born from the idea that machines should understand human speech as naturally as people do, SoundHound AI (NASDAQ:SOUN) develops voice recognition and conversational intelligence technology that enables businesses to integrate voice assistants into their products and services.

The whole purpose of software is to automate tasks to increase productivity. Today, innovative new software techniques, often involving AI and machine learning, are finally allowing automation that has graduated from simple one- or two-step workflows to more complex processes integral to enterprises. The result is surging demand for modern automation software.

SoundHound AI competes with major tech companies that offer voice assistant technology such as Google (NASDAQ: GOOGL) with its Google Assistant, Amazon (NASDAQ: AMZN) with Alexa, Apple (NASDAQ: AAPL) with Siri, and Microsoft (NASDAQ: MSFT) with Cortana, as well as specialized conversational AI providers like Nuance Communications (acquired by Microsoft) and Cerence (NASDAQ: CRNC).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, SoundHound AI’s sales grew at an incredible 68% compounded annual growth rate over the last four years. Its growth beat the average software company and shows its offerings resonate with customers.

Long-term growth is the most important, but within software, a stretched historical view may miss new innovations or demand cycles. SoundHound AI’s annualized revenue growth of 91.9% over the last two years is above its four-year trend, suggesting its demand was strong and recently accelerated.

This quarter, SoundHound AI reported magnificent year-on-year revenue growth of 59.4%, and its $55.06 million of revenue beat Wall Street’s estimates by 2.3%.

Looking ahead, sell-side analysts expect revenue to grow 34.8% over the next 12 months, a deceleration versus the last two years. Still, this projection is commendable and suggests the market is baking in success for its products and services.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

SoundHound AI’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a competitive market and must continue investing to grow.

For software companies like SoundHound AI, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

SoundHound AI’s gross margin is substantially worse than most software businesses, signaling it has relatively high infrastructure costs compared to asset-lite businesses like ServiceNow. As you can see below, it averaged a 42.4% gross margin over the last year. That means SoundHound AI paid its providers a lot of money ($57.64 for every $100 in revenue) to run its business.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. SoundHound AI has seen gross margins decline by 33 percentage points over the last 2 year, which is among the worst in the software space.

SoundHound AI’s gross profit margin came in at 47.9% this quarter , marking a 8 percentage point increase from 39.9% in the same quarter last year. Zooming out, however, SoundHound AI’s full-year margin has been trending down over the past 12 months, decreasing by 6.5 percentage points. If this move continues, it could suggest deteriorating pricing power and higher input costs.

While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.

Although SoundHound AI was profitable this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 13.8% over the last year. Unprofitable, high-growth software companies require extra attention because they spend heaps of money to capture market share. As seen in its fast historical revenue growth, this strategy seems to have worked so far, but it’s unclear what would happen if SoundHound AI reeled back its investments. Wall Street seems to be optimistic about its growth, but we have some doubts.

Over the last two years, SoundHound AI’s expanding sales gave it operating leverage as its margin rose. Still, it will take much more for the company to show consistent profitability.

This quarter, SoundHound AI generated an operating margin profit margin of 77.3%, up 821.5 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

SoundHound AI’s demanding reinvestments have drained its resources over the last year, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 2,426%, meaning it lit $2,426 of cash on fire for every $100 in revenue.

SoundHound AI burned through $4.02 billion of cash in Q4, equivalent to a negative 7,302% margin. The company’s cash burn increased from $33.2 million of lost cash in the same quarter last year.

Over the next year, analysts predict SoundHound AI will continue burning cash, albeit to a lesser extent. Their consensus estimates imply its free cash flow margin of negative 2,426% for the last 12 months will increase to negative 17.5%.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

SoundHound AI burned through $4.10 billion of cash over the last year. With $249.2 million of cash on its balance sheet, the company has around 1 months of runway left (assuming its $4.21 million of debt isn’t due right away).

Unless the SoundHound AI’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of SoundHound AI until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

We were impressed by how significantly SoundHound AI blew past analysts’ EBITDA expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. Zooming out, we think this was a solid print. The stock remained flat at $8.96 immediately after reporting.

Updated: February 26, 2026 at 5:08 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own SoundHound AI, you should also grasp the company’s longer-term business quality and valuation.

Aside from its balance sheet, SoundHound AI is a pretty decent company. First off, its revenue growth was exceptional over the last four years. And while SoundHound AI’s customer acquisition is less efficient than many comparable companies, its expanding operating margin shows it’s becoming more efficient at building and selling its software.

SoundHound AI’s price-to-sales ratio based on the next 12 months is 16.9x. All that said, we’d hold off for now because its balance sheet concerns us. Interested in this company and its prospects? We recommend you wait until its debt load falls or its profits increase.

Wall Street analysts have a consensus one-year price target of $16.31 on the company (compared to the current share price of $8.96).