markets

Matt Phillips12/13/24

SoundHound AI hits record amid apparent short squeeze

Retail-trading favorite SoundHound AI on Friday closed at a record high amid a surge of trading that bore all the signs of a short squeeze.

The California-based small cap, which sells voice-AI software for use in devices like televisions and service vendors like restaurants, has been on a remarkable run this year, rising about 700% amid euphoric trading of AI-related companies.

By any traditional standard of value, the enthusiasm has gotten out of hand. The company — which since going public via a SPAC in early 2022 has never turned a profit — is trading at a price-to-next-12-month-sales ratio of nearly 40x. (Amazon.com, for comparison, one of the world’s great businesses, has a price-to-sales ratio of between 3x and 5x. Even at its peak in 1999, it had a price-to-sales ratio of only about 22x.)

Such signs of euphoria have attracted attention from short sellers betting that financial reality will eventually pull the stock back to earth. Short interest in the stock has been building steadily through the year to more than 25% of SoundHound’s float.

Alas, the downturn shorts were betting on didn’t materialize, and upward pressure on the stock price — seemingly aided and abetted by a record rise in call-option trading — appeared to make holding the trade too painful on Friday.

Shorts, when they throw the towel in on a trade, often rush to buy the shares they need to “cover” at any price, generating a sharp pop in the shares similar to Friday’s nearly 25% jump in SoundHound AI.

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Of the at least 17 analysts that gave a rating on Tuesday, all but one gave it a “buy” or “outperform” rating. MoffettNathanson was "neutral."

The ratings come as SpaceX joined the Nasdaq 100 index, a benchmark tech-heavy basket of companies that underpins millions of portfolios. The inclusion adds built-in demand for the stock from index funds and ETFs.

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Nike sinks to lowest level since 2014 after warning of “challenged” sales environment in Q4 report

Did Nike do it?

Investors had a mixed reaction after the global sports apparel company reported its fourth quarter earnings on Tuesday after the bell. Shares initially rose 5% as Nike beat out Wall Street expectations amid a hefty tariff refund bonus. However, the stock then sank to its lowest level since August 2014 in postmarket trading.

Here are the Q4 numbers:

Revenue of $11.0 billion (estimate: $10.8 billion).
Adjusted earnings per share of $0.20 (estimate: $0.12).

Ahead of this report, Nike warned that results would be flattered by a one-time tariff refund (now estimated at roughly $0.52 per share for the bottom line). That gave the company an extra cushion in snapping its streak of seven quarters of year-over-year profit declines.

Over the past year, the company had been punished by tariffs on imported goods, stagnant consumer spending, and increasing competition from other footwear brands like New Balance, Adidas, and Hoka.

Outgoing CFO Matthew Friend deemed it an “increasingly challenging operating environment, where sell-through remains challenged.”

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