SoundHound AI (NASDAQ:SOUN) stock was downgraded to Underweight from Overweight by Cantor Fitzgerald analysts, sending the company’s shares sliding 4.8% Wednesday.
The analysts also reduced their price target on the stock to $4.90 from $5.80.
The downward revision comes as Cantor Fitzgerald analysts believe the company’s current valuation “is difficult to justify” due to “infancy of SOUN's business, opaqueness of its operating model, decelerating organic growth, lack of capex spend, loss of customers, and growing competition from big tech.”
Analysts also said they see more downside risk than upside at the current price.
Analyzing the rapid increase in SOUN's share price relative to the company's operational performance, it appears the market valuation may have exceeded rational levels. SOUN has projected its revenue to grow by approximately 50% in the year 2024, which would suggest an expected revenue figure of around $69 million.
“That also includes inorganic contribution of its SYNQ3 acquisition, which we believe likely adds north of $5m of inorganic revenue in 2024E. Thus, on an organic basis, we believe revenue growth will decelerate in 2024E relative to 2023,” analysts said.