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Shares of SoundHound AI (NASDAQ: SOUN) are down 72% from their 2025 highs. Yet that decline comes as SoundHound consistently reports strong revenue growth each quarter. Businesses are adopting its technology for in-car assistants, restaurant ordering, and other use cases.

However, one reason for the stock's recent decline is uncertainty over profitability. SoundHound posted a $40 million generally accepted accounting principles (GAAP) net profit in the fourth quarter, but that was due to a non-cash accounting gain from acquisition-related liabilities. The company's adjusted (non-GAAP) net loss was $7.3 million.

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SoundHound has yet to reach breakeven, and the large losses on the bottom line amid increasing competition are the biggest risk. For example, Google's Gemini and Microsoft Copilot Voice use advanced speech recognition to enable natural conversations with users. These tech giants have enormous data center infrastructure and resources, as well as a large customer base that SoundHound doesn't have, and could pose a serious long-term threat.

This doesn't mean SoundHound stock can't be a rewarding buy from current levels. Management continues to point to a path to profitability, targeting an operating margin of over 30% at scale. If it reaches that target, the stock could be a genuine bargain, but it needs to execute flawlessly.

Investors should watch for continued revenue growth and shrinking net losses. The longer SoundHound reports losses, the harder it will be to keep up with big tech's deep pockets and expanding AI capabilities.

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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Microsoft, and SoundHound AI. The Motley Fool has a disclosure policy.

What Is the Biggest Risk for SoundHound AI? was originally published by The Motley Fool