As one of the emerging software specialists, SoundHound AI (NASDAQ:SOUN) has been a beneficiary of the rise and integration of artificial intelligence. Focusing on voice and conversational AI — a critical component within the broader field of automation, customer service and automotive applications — SoundHound has soared to incredible prominence. However, with the immense success comes questions about sustainability.
On paper, it’s difficult to deny the sheer performance. Over the past 52 weeks, SOUN stock gained over 682% of equity value. At this point last year, shares could be had for under two bucks. Now, you’re looking at $14. Fortunately, the premium isn’t just tied to technical enthusiasm.
According to Grand View Research, the global AI voice generators market size reached a valuation of more than $3.56 billion in 2023. By 2030, experts believe that the segment could rise to over $21.75 billion, implying a compound annual growth rate (CAGR) of 29.6%.
Still, valuations may not matter until they do. Earlier, investors thought nothing of bidding up SOUN stock for the enormous growth potential of the conversational AI industry. With that enthusiasm baked in, however, SOUN now carries a trailing-12-month (TTM) sales multiple of almost 64X. That’s well over the 29.44X multiple seen last year (which was already rich).
Priced for perfection, current speculators are taking a big risk that SoundHound still has more to give.
Generally speaking, if you’re going to take a speculative wager on a security, it helps if the stock itself has an upward bias. That’s why people gravitate toward investments like the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), which can be relied upon for a northward journey over the long run.
However, with SOUN stock, the security carries a negative bias. Over its lifetime, the chances that a position entered at the beginning of the week will be positive by the end of it is only 49.65%. These odds slip to 48.57% when the basis is extended to four weeks.
In other words, the stochastic rhythm (or the behavioral tendencies when considering only the temporal context) is unfavorable to the long trader. Now, what’s interesting is that SOUN stock — much like other tech stocks — suffered badly on Monday due to the DeepSeek AI impact. But even modeling as if that volatile event occurred last week, SOUN would have gained about 1.6%.
That’s a significant risk factor because SOUN stock is geared like a race car: it does not and cannot move slowly. Instead, it’s raring to test the upper boundaries of the tachometer. When it is forced to slow down, the lack of activity tends to spark selloffs.
For instance, for weekly gains of up to 5%, in the second subsequent week, the bulls only have a 27.78% chance of a long position rising. It’s an oddity that in part could be explained by the abnormally high short interest against SOUN stock.
Looking at the empirical data, SOUN stock is at risk of declining. From this angle, speculators may consider a simple but powerful debit strategy: buying put options.
Specifically, one idea to consider is the $14 put for the Feb. 21 expiration date. At time of writing, this option is at the money, with an ask price of $1.59. Therefore, the breakeven point for this trade is $12.41.
Statistically, the four-week median loss under negative circumstances following a weekly gain of up to 5% sits at 13.4%. Assuming an anchor price of $14.07 (which was Monday’s close), SOUN stock risks declining to $11.81 by Feb. 21.
Even without the benefit of extrinsic value, there’s a possibility of the $14 put being net profitable for the speculator.
