SoundHound Is Making a Big AI Bet That Could Be a Margin Game Changer

SoundHound AI (SOUN) has years of experience in conversational and voice AI, and that expertise has helped drive revenue growth. But the company has yet to turn that growth into consistent profits. This is the reason now the company is making a bet that could change that. It is bringing more of its AI technology in-house, with management expecting the move to lower costs and improve profit margins. If this bet works, SoundHound may not just become a bigger AI company; it could become a much more profitable one. Let’s find out what management is planning to do.

The Margin Story Is Starting to Look Different

SoundHound AI develops conversational and voice AI technology that allows businesses to use AI agents to interact with customers. Its technology is used in areas such as cars, restaurants, healthcare, financial services, and retail, among others. SoundHound has been growing revenue at a rapid pace the last few years. In the most recent second quarter, revenue increased by 45% year-over-year (YoY) and 40% sequentially to $61.9 million. Despite the rapid revenue growth, SoundHound is not profitable yet. It reported a GAAP net loss of $0.10 per share and an adjusted net loss per share of $0.02 in Q2. 

The company spent $27.1 million on R&D and $26 million on G&A, led by acquisition-related costs. Thus, GAAP gross margin hit 45%, which is far below the level SoundHound ultimately wants to reach. Management expects gross margins to eventually surpass 70%, close to where the company stood when it went public. However, getting there will not happen solely through sales growth. The company will need to do more. That is precisely where its investment in an increasingly proprietary AI stack comes into the picture.

The company's new OASYS platform is important to this margin story. OASYS is designed as an agentic AI platform that can operate across different channels. This allows SoundHound to scale its AI across industries and use cases without having to construct a new technology stack for each. It also contains an unusual feature called "AI Builds AI," which allows customers to build agents quickly. Management stated that SoundHound just received an eight-figure commitment in less than 90 days from the initial presentation to contract. This means that OASYS can help boost sales even further in the coming quarters. 

What’s more, the company is also building Polaris, its own speech foundational model, while also developing specialized large language models and speech synthesis technology using its proprietary interaction data. SoundHound operates in various industries, including automotive, restaurants, healthcare, financial services, and other workplace environments, and it is experiencing strong demand in all of them. Management believes that moving to its own stack will enhance quality and reduce expenses while offering SoundHound more flexibility, independence, differentiation, and, ultimately, bigger profit margins.

Ultimately, SoundHound is not just looking to expand through new consumers or acquisitions. It aims to make a single increasingly proprietary AI platform serve more clients, industries, and use cases. If that scalability materializes, the company's rapid revenue growth may eventually propel it to profitability.

After the strong first half, SoundHound raised its 2026 revenue target to a range of $230 million to $260 million. It ended Q2 with $203 million in cash and equivalents and no debt. That balance sheet strength gives the company room to continue investing even when the bottom line is under pressure. 

Is SOUN Stock a Buy Now?

SoundHound’s Q2 earnings made its long-term case stronger. Revenue is growing rapidly, OASYS is accelerating enterprise deals, the customer base is expanding across multiple industries, and SoundHound is increasingly bringing AI technology in-house. Nonetheless, it remains a high-risk play as the company is still unprofitable. It is still integrating acquisitions and spending aggressively while simultaneously promising materially higher future margins. For investors willing to tolerate that uncertainty, SOUN stock remains an intriguing buy now.

On Wall Street, overall, SOUN stock holds a consensus “Moderate Buy” rating. Of the eight analysts covering SOUN, five give it a “Strong Buy” rating, while three suggest a “Hold.” SOUN stock is down 28% year-to-date (YTD), but the average price target of $11.57 suggests the stock can climb by 61% from current levels. However, the highest target price of $16 implies potential upside of 122% within the next 12 months.