SoundHound Rises as Short Sellers Exit and AI Demand Grows

Key Points

• SoundHound AI's July stock surge is driven by several factors, including short-covering, institutions, and retail inflows.
• The growth outlook is robust and is likely to be too low. 
• Dilution is the biggest risk for investors in 2025, and the risk is low. 

SoundHound AI NASDAQ: SOUN shares surged more than 30% in early July as a combination of factors rapidly reduced the available share count.

They include inflows into agentic AI names, such as Salesforce, Palo Alto Networks, and Meta Platforms, as well as short-covering, which is robust.

In June, short interest in SoundHound was over 30%, making it a powerful market force for share prices. 

Assuming the news flow continues to be positive, and there is no reason to think it won’t, short covering is likely to continue over the summer, providing a lift for this stock.

Agentic AI refers to the use of automated, AI-enabled features, the meat and potatoes of AI’s second wave. Valued at less than $15 billion in 2025, it is expected to grow robustly over the next decade. Estimates vary but indicate that agentic AI spending will increase at a high compound annual growth rate (CAGR) of 40% to 50% through this decade and possibly beyond.

Assuming this pace is correct, the consensus for SoundHound AI’s long-term revenue growth is too low. Investors can expect a persistent upgrade cycle to unfold, providing a price lift over the next few years. 

SoundHound AI Hyper Growth Accelerates

SoundHound AI has numerous growth levers, including increasing use by existing clients, client acquisitions, and expansion into new verticals. The combination is resulting in hyper-growth and acceleration, with growth topping 150% in FQ1. The consensus forecast reported by MarketBeat is for Q2 growth to remain strong but slow to around 145%, which is unlikely given the trends. The more likely result is that Q2 will top the consensus estimates and provide another positive catalyst for the market.

Two recent acquisitions provide reasons to believe the Q2 results will be better than consensus forecasts. They highlight the company’s strategy to embed its voice-activated AI services into businesses and industries globally. Amelia strengthened SoundHound’s enterprise-level presence globally, while Allset bolsters restaurant offerings with its restaurant ordering platform. The takeaway is that the company is not only expanding its reach but also increasing its upsell and cross-selling opportunities quarterly, thereby improving its leverage for long-term growth. 

The Sell-Side Tailwind Is Strengthening in 2025

Sell-side interest, including institutions and analysts, remains relatively light for SoundHound but is strengthening in 2025. Analysts have trimmed targets from lofty levels earlier in the year, which has impacted the first-half price action, but remain otherwise bullish. The data reveals increasing coverage, firming sentiment, a Moderate Buy rating, and expectation for prices to range near $15. Regarding the institutions, they own only 20% of the stock but have been buying aggressively in 2025. The data reported by MarketBeat shows institutions buying at a pace of 10-to-1 relative to sellers. 

The risk for investors is dilution. The company has a fortress balance sheet with ample capital and no debt, but may need to raise cash as it scales its business. As it stands, the share count at the end of Q1 was up an average of 44.5% compared to the prior year. 

The early July price action in SoundHound stock is favorable. The market appears to have reached a bottom near critical support levels and is undergoing a complete reversal. The July price surge took the market to a fresh high, clearing a key hurdle that sets it up to trend higher as the year progresses. The risk for traders is that resistance points near $14.25, $15.75, and $18 could lead to volatility, consolidations, and price corrections.