Shares of SoundHound AI (NASDAQ: SOUND) started Thursday’s trading with a modest gain and continued to rise almost all day. When the closing bell rang, the stock was up 22.1%.
The company had no news to report today. It’s earnings season, but SoundHound AI will report its third-quarter results next Tuesday. The company did not file any documents with the Securities and Exchange Commission (SEC) today or send out any press releases.
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It was a strong market day overall for a variety of reasons, but SoundHound AI stock shouldn’t outperform the rest of the market for that reason.
But there are other forces at work. The provider of artificial intelligence (AI) tools for audio interpretation and voice control is acting like a meme stock these days.
The ticker was popular on the popular stock trading channel r/wallstreetbets Reddit (NYSE:RDDT) today, as several influencers suggested heavy buying ahead of the upcoming earnings report. Many posts also highlighted SoundHound AI’s substantial short-sale stake of 24% of total shares, causing it to make a sudden short-squeeze jump.
This is a relatively small stock with a market cap of $2.5 billion today and $2 billion at market close Wednesday. A dedicated group of social media users has the power to move the price of stocks with this profile: small, lightly traded, and with heavy short-selling interest.
About 69 million SoundHound AI shares changed hands today, more than three times the average trading volume over the past month.
I like SoundHound AI for its long-term business prospects, not for its potential to make quick wins using social media campaigns.
After decades of building an unparalleled audio interpretation platform, the company has entered a new era of big business plans. The customer list is long and growing, with many leading automakers, restaurants and consumer electronics giants. The backlog of unfulfilled orders and subscription contracts stood at $723 million in the last earnings report and is likely to be significantly larger in next week’s report.
So yes, I agree with the meme stock crowd that SoundHound AI is a good investment, but I wouldn’t buy it today. These sky-high price spikes usually dissipate within a few days, often reversing into negative territory. And they do absolutely nothing to help the company run its business or find more customers.
