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SoundHound AI (NASDAQ: SOUN) has been a tough stock to own over the past two years. The audio and speech recognition company went public by merging with a special purpose acquisition company (SPAC) on April 28, 2022, and its stock opened at $8.72 before soaring to a record high of $14.98 a week later.

At the time, investors were impressed by its explosive sales growth, disruptive potential, and broad exposure to the expanding artificial intelligence (AI) market. But today its stock trades at less than $5. The bulls retreated as it missed its own forecasts, racked up steep losses, and struggled to expand. Rising interest rates also squeezed its valuations.

That was a dismal run, but should contrarian investors buy SoundHound's stock as the bulls look the other way? Let's take a fresh look at its business model, growth rates, and valuations to decide.

A long-term play on decentralized audio recognition tools

SoundHound's namesake app helps its users identify songs by simply playing a few seconds of audio or humming a tune. Its developer platform, Houndify, helps companies create custom voice recognition tools for their products and services.

Tech giants like Microsoft (NASDAQ: MSFT), Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google, and Apple (NASDAQ: AAPL) also provide their own AI-powered voice recognition tools, but Houndify is a popular alternative for companies that don't want to chain themselves to those massive ecosystems. That's why automakers like Hyundai, smart-TV makers like Vizio, and fast-food chains like Church's Chicken all use Houndify to power their services.

SoundHound AI could still have plenty of room to grow as more companies adopt its audio and speech recognition services. According to Fortune Business Insights, the global speech and voice recognition market could keep expanding at a compound annual rate of 25% from 2023 to 2030. That's probably why Nvidia (NASDAQ: NVDA), the world's largest producer of AI accelerator chips and bellwether of the AI market, increased its stake in SoundHound earlier this year.

Why did SoundHound disappoint the bulls?

Like many other SPAC-backed tech companies, SoundHound set high expectations prior to its public debut but failed to clear its own bar. Here's how its actual revenue, gross margin, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) measured up to its original estimates over the past two years.

SoundHound actually surpassed its own top-line estimates in 2022, but it couldn't significantly accelerate its growth in 2023. It attributed that slowdown to the macro headwinds that forced many companies to rein in their software spending.

It exceeded its own adjusted EBITDA margin estimates over the past two years, but it notably laid off nearly half of its workforce to stabilize its margins in early 2023. Earlier this year, it postponed its goal of achieving positive adjusted EBITDA to 2025 to integrate its acquisition of the restaurant-solutions provider SYNQ3 and ramp up its investments.

For 2024, SoundHound expects its revenue to grow 42% to 68%. Analysts expect its revenue to rise 54% to $70.5 million as it slightly narrows its adjusted EBITDA loss by $3.7 million to $32.2 million. But based on those expectations and its enterprise value of $1.6 billion, its stock still looks expensive at 22 times this year's sales.

But don't ignore its potential strengths

SoundHound won't break even anytime soon, but it ended the first quarter with $226 million in cash and a manageable debt-to-equity ratio of 0.8. Therefore, it also won't go bankrupt anytime soon, and it can afford to take more losses and take on more debt as its scales up its business.

The company also still has plenty of irons in the fire. Its acquisition of SYNQ3 should accelerate the expansion of its restaurant-focused services, it's integrating its voice recognition tools into vehicles running on Nvidia Drive, and it's working with the AI chatbot maker Perplexity to upgrade its own large language models (LLMs).

It also continues to gain new customers across the quick-serve restaurant, automotive, and telecom industries. There's clearly a lot of pent-up demand for its independent audio recognition tools, which aren't locked into big tech ecosystems.

So is it the right time to buy SoundHound AI's stock?

SoundHound is still growing, but it will likely stay in the penalty box until its revenue growth stabilizes and it meaningfully narrows its losses. Investors also won't be eager to buy this speculative stock as long as interest rates stay elevated.

If you can accept the fact that the stock could easily be cut in half before it doubles again, then it might be smart to nibble on it right now. That said, I believe investors should slowly scale into this volatile stock over the next few years.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun has positions in Apple. The Motley Fool has positions in and recommends Alphabet, Apple, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.