Today's significant decline in SoundHound AI's stock price.
Houndify Tech (HOUN -2.23%) shares are experiencing significant sell-offs in today's trading. The company's share price plummeted 12.3% by 11:30 a.m. ET, while the S&P 500 index increased by 0.6%, and the Nasdaq Composite index went up by 0.7%.
Despite the significant drop as of now, Houndify Tech shares had a promising start to the day with substantial gains. The conversational AI specialist's share price had soared as much as 14.1% during the session's early hours.
The cause behind Houndify Tech's stock volatility today
Houndify Tech shares surged at the beginning of today's trading session. The company's skyrocketing valuation was mainly driven by bullish coverage from Wedbush analyst Daniel Ives and the participation of the Chief Financial Officer, Nitesh Sharan, in a conference call hosted by Northland yesterday evening. However, investors received some bearish news on the macroeconomic front.
The Federal Reserve announced another quarter-point reduction in the benchmark interest rate the previous day. Despite this, Chairman Jerome Powell made comments that were more hawkish than investors had anticipated. For instance, Powell explained that the decision to cut the rate was not an easy one.
Although significant headway has been made in tackling inflation, only two additional rate cuts are now expected in 2025 – less than half of the four cuts that investors had hoped for. Houndify Tech still managed to close the previous day's trading in the green, but the near-term trading outlook appears to have shifted.
What's next for Houndify Tech's stock?
Yesterday's interest-rate news may have initiated a significant shift in the market's approach to growth stocks. While many large-cap stocks are witnessing some valuation bounces back today, smaller companies with speculative and heavily growth-dependent valuations are generally seeing substantial pullbacks. Given the less favorable outlook on rate cuts for the next year, investors are withdrawing funds from these riskier investments.
With this change, Houndify Tech might also be experiencing a rise in short-selling. Even with today's drop, the company's share price has soared by 759% throughout 2024's trading – and the software specialist boasts an impressive valuation of approximately 80 times this year's projected sales.
Houndify Tech's share price has significantly increased lately, and some investors have been wagering against the stock. This can drive the company's share price down, especially if investors are collectively betting that the recent rally for speculative growth stocks may be coming to an end.
On the other hand, there's a possibility of a short-squeeze scenario in the future. If Houndify Tech's stock price recovers, short-sellers may be compelled to buy back their shares to minimize their losses. This buying activity may further push the stock price upward, triggering further buying from short-sellers and other investors.
Considering these factors, Houndify Tech's stock will likely remain highly volatile in the short term. The company could witness a resurgence of strong bullish investment, but the stock remains high-risk, even after today's drop.
Investors might be withdrawing funds from riskier investments like Houndify Tech due to the less favorable outlook on rate cuts for the next year, given the shift in the market's approach to growth stocks. This situation could potentially lead to an increase in short-selling of Houndify Tech's shares, considering the company's impressive valuation and significant price increase this year.
Given the company's high-risk status and the volatile nature of the market, investors interested in Houndify Tech's stock should pay close attention to any potential short-squeeze scenarios, as they could significantly impact the stock's price movement.
