SoundHound AI, Inc. (NASDAQ: SOUN) experienced a notable surge in its stock price during Thursday's trading session, following the release of its second-quarter earnings report. The shares closed up 10.1% at $7.08, after opening 25.2% above the previous day's close. This positive momentum continued into Friday's premarket trading, with shares adding another 0.7% to reach $7.13.
The company reported second-quarter revenue of $61.9 million, a 45% increase year-over-year and an 18.1% beat over the consensus estimate of $52.39 million. This strong performance was driven by significant enterprise agreements, particularly the OASYS deals, according to interim finance chief James Hom. However, the company's guidance update was more conservative, with the midpoint of full-year 2026 revenue guidance rising only 1.0% to $245 million, from a previous range of $225 million to $260 million. The lower bound was increased by $5 million to $230 million, while the upper limit remained unchanged at $260 million.
This cautious guidance has created a division among investors. SoundHound reported $106.1 million in revenue for the first half of 2026, meaning the company must generate between $123.9 million and $153.9 million in the second half to meet its revised forecast. This implies a quarterly revenue threshold of $62.0 million to $77.0 million, with the lower end aligning closely with the second-quarter performance, while the higher end would require a 24.3% sequential increase.
Despite the revenue beat, profitability metrics showed mixed results. GAAP gross margin improved to 45.1% from 39.0% in the prior year, and adjusted EBITDA loss narrowed by 33% to $(9.6) million. The GAAP net loss also decreased by 43% to $(42.8) million. Non-GAAP EPS came in at $(0.02), beating analyst expectations by three cents. However, cash conversion remained weak, with operating cash outflow increasing by 37% to $60.0 million. The company ended the quarter with $203 million in cash and no debt.
CEO Keyvan Mohajer attributed the results to the "momentum SoundHound is building," highlighting a new channel agreement with an initial eight-figure commitment spanning over 20 countries. However, he also noted that certain elements of major deals may not recur at the same magnitude, which could impact future revenue streams.
The company's outlook does not factor in the pending acquisition of LivePerson, Inc. (NASDAQ: LPSN). Management plans to revise guidance after the deal closes, which is expected by year-end. The 2027 revenue goal of $350 million to $400 million assumes the transaction concludes in the second half of 2026.
Market reaction to the earnings was muted in the long run, as investors gave back nearly 60% of the opening dollar advance before Thursday's close. With an equity value of $3.09 billion on Thursday, shares were trading at approximately 12.6 times the updated guidance midpoint, placing greater emphasis on the company's ability to hit the upper end of its forecast.
Analyst reactions were mixed. D.A. Davidson's Gil Luria maintained a Buy rating but trimmed the price target from $12 to $10, citing "revenue upside driven by OASYS demand." Piper Sandler's James Fish kept a Neutral rating, noting execution risks remain. Other analysts, including Northland Securities and Cantor Fitzgerald, maintained Buy ratings with price targets of $12 and $15, respectively. The consensus among six analysts is a Strong Buy, with a mean price target of $12.86, implying an 81.6% upside from Thursday's closing price.
Key risks for SoundHound include potential volatility in quarterly revenue due to large enterprise contracts, stock-based compensation representing approximately 35% of sales in Q2, and uncertainty around the LivePerson acquisition timeline and integration. Upcoming milestones include the quarterly filing, third-quarter revenue trends, and the completion of the acquisition. While the earnings beat has raised the lower boundary for SoundHound, the upper boundary remains to be demonstrated.
