SoundHound Breaks Critical Resistance: How High Can It Get Now?

Key Points

• SoundHound AI's onboarding of Red Lobster as a client affirms its technology and utility to large-scale businesses.
• Analysts and institutional trends are driving this stock higher in 2025.
• Short-sellers are a risk and may cap gains until the Q3 earnings release.

SoundHound’s NASDAQ: SOUN share price advanced by more than 10% on September 23rd to set a fresh long-term high and potentially break the market out of its trading range. The implication of this move is significant because it opens the door to a larger movement that includes a retest of all-time highs and potential to set new highs this year. 

The move was catalyzed by the announcement that Red Lobster is now a client. The deal is worth millions in revenue and cash flow, both in the near and long-term, including for the deployment of technology and recurring revenue for ongoing services.

More importantly, it is a validation of the company’s technology and utility, as Red Lobster is the world’s largest seafood chain and highly visible within the marketplace.

The critical detail is that this isn’t a test run: the press release states that Red Lobster will deploy services across its entire network, enabling more efficient call handling and reduced impact on location staff. 

Positive Analysts Trends and Short-Sellers Collide at $18 SoundHound

The Red Lobster news aligns with analysts' expectations and will likely sustain the positive trends. MarketBeat data reveals SoundHound's support is rapidly increasing, with coverage doubling over the last twelve months and sentiment firming.

The consensus is a Moderate Buy, but the bias is bullish, with 60% of analysts rating it as a Buy, and the trend is positive. The price targets are approaching the high-end range, where the associated risks start to increase. 

The high-end range is near the late-September highs at $18. It aligns with a potentially robust resistance zone formed in late 2024 when the market pulled back.

A move above that level will be difficult without a catalyst to drive it, and there are impediments to the price action other than analysts' sentiment. The short interest was very high as of early September, at nearly 33%.

It may have fallen since, but it is unlikely to have dropped significantly. The price action suggests that those who are covered are repositioning at a higher level, just above the $18 region. 

Institutional Support for SoundHound Grows With Catalysts on the Horizon

The risk for short-sellers is two-fold. On the one hand, the institutional interest is growing. The group still owns a small portion of the stock, about 20%, but the balance of activity is robust, netting $8 in shares for each $1 sold over the trailing twelve-month period.

The trend in Q3 aligns with that of the past year, suggesting a tailwind is in place for this market. On the other hand, a catalyst is ahead. That is the Q3 earnings report due in early November. 

The consensus for Q3 is robust, with expectations of solid, double-digit growth compared to the same quarter last year. However, given the rise in Q2 RPO/backlog, the forecast for growth to slow to only 80% and decline sequentially compared to the previous quarter is faulty.

The more likely scenario is that revenue growth will outperform the consensus figures, potentially accelerating compared to the prior quarter, as new clients are onboarded, cross-selling opportunities are realized, and services to existing clients expand. 

SoundHound has been criticized for using debt, or lack thereof, in its growth strategy. Some see it as hampering the business, but there is a flipside. The company’s balance sheet is a fortress, enabling it to grow shareholder value while investing in growth.

As of the end of Q2, the company was net cash relative to total liabilities, with equity on the rise, doubling compared to the previous year. Based on the client wins and increasing deal momentum, the impact of debt on the outlook would be minimal; it’s already growing robustly.