What Happened?

A number of stocks fell in the afternoon session after investors grew increasingly concerned that the billions of dollars being invested into artificial intelligence may not generate sufficient profits. 

This sentiment fueled fears of a potential "AI bubble," leading to a significant downturn in the technology-heavy Nasdaq Composite index. The selloff was intensified after chipmaker Broadcom warned that increased sales of AI systems could lead to thinner profit margins, causing its stock to tumble. Subsequently, the broader market questioned whether the massive spending on chips and data centers would produce a worthwhile return on investment. This uncertainty caused a market recalibration, with investors rotating capital out of more speculative tech stocks and into more stable assets.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Lending Software company Upstart (NASDAQ: UPST) fell 4.5%. Is now the time to buy Upstart? Access our full analysis report here, it’s free for active Edge members.
• Advertising Software company Zeta Global (NYSE: ZETA) fell 5%. Is now the time to buy Zeta Global? Access our full analysis report here, it’s free for active Edge members.
• Automation Software company SoundHound AI (NASDAQ: SOUN) fell 6.6%. Is now the time to buy SoundHound AI? Access our full analysis report here, it’s free for active Edge members.
• Sales Software company Salesforce (NYSE: CRM) fell 3%. Is now the time to buy Salesforce? Access our full analysis report here, it’s free for active Edge members.
• Document Management company DocuSign (NASDAQ: DOCU) fell 4%. Is now the time to buy DocuSign? Access our full analysis report here, it’s free for active Edge members.

Zooming In On SoundHound AI (SOUN)

SoundHound AI’s shares are extremely volatile and have had 83 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The previous big move we wrote about was 4 days ago when the stock dropped 5.6% after broader weakness in the artificial intelligence sector weighed on the stock as tech giant Oracle raised investor concerns about an AI bubble. 

Oracle issued a weak revenue outlook and increased its spending forecast, which intensified scrutiny around the high costs associated with AI technology. This news sparked worries about whether the significant investments in AI across the industry would pay off, leading to a sell-off in related stocks. Compounding the negative sentiment for SoundHound AI, prominent market commentator Jim Cramer stated that the company did not make any money, adding to investor concerns about its financial footing amidst the sector-wide pressure.

SoundHound AI is down 46.2% since the beginning of the year, and at $10.85 per share, it is trading 55.2% below its 52-week high of $24.23 from December 2024. Investors who bought $1,000 worth of SoundHound AI’s shares at the IPO in April 2022 would now be looking at an investment worth $1,446.

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