SoundHound AI (NASDAQ:SOUN) shares dropped nearly 8.5% on Friday, closing at $19.02 per share. The trigger wasn't a major earnings miss, product flop, or market-shaking news -- just the company's CFO, Nitesh Sharan, offloading over 60,000 shares at prices above $21 a share, for about $1.28 million.
It should be noted about half of the sales were related to exercising stock options at $7.514 per share. That's a fairly routine move for an executive with stock-based compensation, but the market treated it like a red flag on the company's future.
Legendary investor Peter Lynch once said insiders sell stock for all sorts of reasons that have zero to do with the business's health. Maybe it's paying off a mortgage, funding a kid's college, or diversifying a portfolio heavy on one name. Lynch knew: executives aren't oracles; they're people with bills.
In this case, the trades were pre-planned, falling under a December 2024 Rule 10b5-1 plan, which are SEC-approved transactions that lets insiders schedule sales in advance to avoid insider-trading accusations. These were essentially mechanical trades, not malicious.
The knee-jerk sell-off was the wrong reason to dump SOUN stock. Insiders cashing out on autopilot doesn't signal doom for the voice AI player riding a generative tech wave. But that doesn't make SOUN stock a buy.
While SoundHound's growth story shines on the surface, if you dig deeper, you can find five solid reasons to steer clear, even at this lower price.
Reason 1: Perpetual Red Ink
SoundHound AI has never posted an annual profit since its founding in 2005. In fact, losses are widening. In the second quarter, GAAP net losses hit $74.7 million, up from $22.3 million in Q1 and much higher than a year ago. Although part of the spike ties to a $31 million non-cash hit from its Amelia acquisition, core operations are bleeding, too.
Q2 revenue jumped 217% year-over-year to $42.7 million, fueled by partnerships in autos and quick-service restaurants. Yet, operating expenses ballooned to $120 million, swallowing gains. Management whispers of adjusted EBITDA breakeven by late 2025, but that's a big "if" on turning a $1.2 billion backlog into cash without more margin pain.
Investors chasing AI unicorns can't ignore this: unprofitable growth is a trap, especially when rivals are inking black ink.
Reason 2: A Towering Cash Inferno
Soundhound is hemorrhaging free cash flow, torching $43.7 million in the first half of 2025 alone, with no sign of slowing. The company is debt-free and sits on $230 million in cash, a decent cushion for now. But at this burn rate, that's 12 to 18 months of runway before dilution or desperation hits.
