SoundHound AI Inc (SOUN) shares plummeted 5.01% in pre-market trading on Monday, as concerns about the company's lofty valuation and fears of a potential stock bubble weighed on investor sentiment.

Despite the AI start-up's impressive growth and expanding customer base, analysts have raised questions about the stock's meteoric rise in recent months. SoundHound's market capitalization has soared to a staggering $9 billion, despite projecting revenue of around $200 million for 2025. This sky-high valuation, which anticipates extremely high growth for many years, has raised eyebrows among market watchers.

Furthermore, there are concerns that the rapid increase in SoundHound's stock price may be partially driven by meme stock trading and short-covering activities, rather than solely by fundamentals. With a high short interest of 22.1% at the end of November, some investors may be taking advantage of the situation by bidding up shares, forcing short-sellers to cover their positions.