Shares of SoundHound AI (NASDAQ: SOUN) experienced a significant decline on Thursday, plummeting by as much as 13.6% before settling at an 11.4% decrease by 3:13 p.m. ET.
The drop was triggered by a short report and an uncommon double downgrade by a Wall Street analyst. Capybara Research published a short report titled "Lies, Damned Lies, and Cheeseburger 'AI'" which painted a negative picture of SoundHound AI, alleging it to be a "failing company peddling lies and deception" and setting a price target of $1.
The report raised various concerns, including questioning the superiority of SoundHound's voice recognition technology over competitors like Amazon's Alexa or Apple's Siri.
It also highlighted a rise in customer defections and the company's increasing losses, with no clear path to profitability.
A particularly troubling issue was SoundHound's revised definition of its backlog, now described as "potential revenue achievable," rather than a contractual obligation.
Concurrently, analysts at Cantor Fitzgerald downgraded the stock from overweight (buy) to underweight (sell) and set a price target of $4.90, representing a 38% decline from Wednesday's closing price.
They cited concerns about the valuation, the opaque nature of SoundHound's operating model, slowing growth, customer losses, and increasing competition from larger rivals.
It's important to approach stock investment with caution, especially in the case of SoundHound AI, which lacks profitability and carries a high valuation, making it inherently risky.
While there is potential, investors should exercise caution. Risk-averse individuals may consider selling their SoundHound AI shares.
It's advisable not to base investment decisions solely on analysts' opinions or short reports.
However, if the concerns raised in these reports are valid, investors should proceed with caution and remember the adage, "Where there's smoke, there's fire."