As SoundHound AI (SOUN -1.24%) has developed voice-recognition technology driven by artificial intelligence (AI) that has attracted high-profile clients, more investors have taken an interest in the company. Between that technology and rapid revenue growth, it may look like a stock poised to drive outsize returns.

Unfortunately, SoundHound AI continues to deal with challenges that may call its investment case into question. Unless the company can mitigate those challenges, the stock is unlikely to succeed, and here's why.

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Why investors are tuning into SoundHound AI stock

In many respects, SoundHound AI appears to be punching far above its weight. It has developed AI-based voice recognition technology, promoting it as "next-generation AI." With that, its technology can help customers perform tasks via voice prompts.

This has drawn the interest of numerous corporate clients, particularly in the automotive industry. Moreover, the company has attracted restaurants, financial services businesses, telecom companies, and others to its platform.

Despite its market cap of $4.1 billion, SoundHound AI has successfully earned business while competing with much larger players. It generated $29 million in revenue in the first quarter of 2025, a 151% increase from year-ago levels.

And the company turned a profit in the first quarter, a goal that might have appeared out of reach a year ago quarter. During the quarter, it earned more than $129 million, up from a $33 million loss in the first quarter of 2024.

That likely helped boost the stock. After a sell-off at the beginning of the year, it turned higher following the release of the report. Consequently, shares are up by about 115% over the previous 12 months.

SoundHound AI's daunting challenges

However, investors are likely to find some serious concerns as they look at the stock's financials more closely.

The most obvious oddity is that net income was more than four times its revenue. And that occurred at a time when operating expenses for the first quarter were $99 million, which was more than three times the company's revenue in that quarter.

It also reported a change in the fair value of contingent acquisition liabilities. This amounted to a $176 million noncash benefit that turned SoundHound AI profitable for the quarter. Hence, when examining the negative free cash flow of $19 million, the "profit" is not as promising as it appears.

Currently, the company has almost $246 million in liquidity. This means it can sustain the current pace of negative cash flow for approximately three more years before having to add debt or issue more shares.

Furthermore, it competes with numerous companies, including tech heavyweights Alphabet, Amazon, and Microsoft. All of those companies hold cash positions that far surpass SoundHound's market cap, meaning if one of these companies wants to compete directly, it is in a strong position to take market share from SoundHound AI.

Also, even though the business may look like a buyout candidate, Nvidia recently sold its SoundHound AI stock, and no other tech giant has taken a position in the company. Knowing that, the case for the stock may rely too much on hope, which does not put its shareholders in a strong position.

Think twice about buying SoundHound AI stock

Under current conditions, investors are unlikely to succeed with this stock as a long-term investment.

Admittedly, SoundHound AI has developed some compelling voice-driven technology with AI, and that has attracted some of the world's best-known enterprises as clients.

Nonetheless, its first-quarter profit came from a one-time benefit, and with operating expenses far outpacing revenue, long-term profitability appears out of reach.

Moreover, the company has to compete with some of the world's largest companies, which have plenty of resources. Unless the rapid revenue growth starts to translate into a dramatically improved financial performance, investing in SoundHound AI is unlikely to pay off for investors in the long term.