Looking at the corporate profile for SoundHound AI (NASDAQ:SOUN), it’s difficult not to get excited about the application software enterprise. Specializing in independent voice artificial-intelligence (AI) solutions for multiple industries — including automotive and the Internet of Things (IoT) — SoundHound effectively marries human impulses with technological conveniences. Yet everything has a price and investors should be careful about overpaying for SoundHound AI stock.

To be clear, I’m not issuing a bearish framework for SOUN. Rather, if anything, it’s a hold. Clearly, the underlying business, which incorporates advanced services such as application programming interfaces (API) for text and voice queries, ranks among some of the most utilitarian available. Further, voice AI can potentially yield holistically positive outcomes, though that’s a very controversial debate.

Either way, generative AI is rapidly becoming part and parcel of modern society. Voice commands will likely only become an integral component of productivity measures. Therefore, SoundHound AI stock enjoys tremendous relevance. Few would doubt this hypothesis. However, price is everything, especially for a relatively small-capitalization firm.

Fundamentals Support the Long-Term Narrative

As stated above, no one questions the viability of the narrative driving SoundHound AI stock. Shares gained over 143% of equity value since the January opener for a reason.

Much of the positivity surrounding SOUN is of course dramatic interest in generative AI. According to Bloomberg, the total ecosystem could be worth $1.3 trillion. While that may be on the more optimistic end of the scale, it’s certainly not unreasonable relative to other projections.

Also, it should be noted that sector players continue to post tremendous performance statistics. Case in point is Nvidia (NASDAQ:NVDA). Demand for its graphics processing units (GPUs) — the semiconductors that power advanced generative AI protocols — has been absolutely bonkers. Nvidia continues to smash expectations. That’s the case even with critics questioning the sustainability of its take-no-prisoners run.

While that’s not directly related to SoundHound AI stock, the underlying enterprise enjoys a downwind benefit. Nvidia’s latest earnings beat demonstrates that enterprises are still paying top dollar for top AI solutions.

Moreover, SoundHound AI stock is riding coattails of its core industry. Per Grand View Research, the global voice and speech recognition market reached a valuation of $20.25 billion last year. Experts project that by 2030, sector revenue could hit $53.67 billion. If so, that would translate to a compound annual growth rate (CAGR) of 14.6%.

So, why not buy SOUN stock now?

Valuation Still Matters

While I’m not suggesting that traders should short SoundHound AI stock, which would be extremely dangerous, I’m not convinced this is the right time to buy. Essentially, the market can still provide a discount to SOUN. If so, I’d probably regret going all-in at an unnecessarily high price.

Don’t get me wrong, SoundHound offers a great solution. Certainly, its core market may see robust growth but I’m not ready to pay the hefty valuation premium. Relative to trailing-year sales, you’d be paying a multiple of 24.89X. That’s awfully steep.

I’m not just saying that. As mentioned earlier, SoundHound AI stock falls under the application software arena. On average, this sector runs a revenue multiple of 3.9X. Granted, making an apples-to-apples comparison is difficult because not all software companies are as exciting as SoundHound. However, that’s a massive multiple to pay considering that at some point, its growth rate will decline due to the maturity of the business.

Yahoo Finance notes that SoundHound’s quarterly revenue growth rate currently stands at 72.9%. That’s blisteringly hot. However, analysts also project that fiscal 2024 sales will hit $71.03 million and fiscal 2025 revenue $104.33 million. That comes out to year-over-year growth of 54.8% and 46.9%, respectively.

These are robust figures, certainly. However, the magnitude of growth is steadily declining from 72.9%.

Finally, at the most optimistic fiscal 2025 sales target of $107.03 million, SoundHound AI stock would be trading at a multiple of around 14.02X. That’s better than nearly 25X. However, it’s still very hot compared to the application software industry.

The Takeaway: SOUN Stock is Great But Not at This Price

Here’s the bottom line with SoundHound AI stock. The underlying business is amazing, there’s no doubt about it. Further, the AI subsector of voice recognition enjoys a credible, northward projected pathway. However, the sales multiple is simply too hot. It may be better for prospective investors to wait for a better deal.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.