Shares of SoundHound AI (NASDAQ: SOUN) were soaring on Monday. The artificial intelligence (AI) voice technology company’s stock closed the day up 22.6%, and was up as much as 24.9% earlier in the day. The significant jump comes as the S&P 500 (SNPINDEX: ^GSPC) gained 3.3% and the Nasdaq Composite (NASDAQINDEX: ^IXIC) surged 4.3%.
A temporary reduction in U.S.-China tariffs is driving optimism across the market.
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A temporary pause
The United States and China announced a temporary agreement to reduce the sky-high tariffs imposed on each other following President Trump’s “Liberation Day” announcement last month. Under the agreement, the U.S. will reduce the tariff on Chinese imports to 30% from its current 145%, while China will lower its import duty on American goods to 10% from 125%.
The 90-day truce comes after a weekend of negotiations between U.S. and Chinese officials in Switzerland. While it is temporary and doesn’t end the trade tensions between the two superpowers, it provides some breathing room for both economies and companies with exposure to U.S.-China trade.
SoundHound has business in China
SoundHound, a U.S. company, has been pushing to expand globally, especially in China. The company recently announced a key deal with Chinese tech giant Tencent. The company will integrate SoundHound’s voice AI capabilities into Tencent’s cloud-based solutions for the automotive industry. This is the latest in several deals with Chinese companies.
Image source: Getty Images.
As a primarily software-based business, the tariffs don’t impact SoundHound directly, but they do impact its cost of doing business. The hardware supply chain of the entire AI industry relies heavily on trade between China and the U.S., and the tariffs that impact this hardware make doing business more expensive for everyone involved. Furthermore, if tensions continue to rise, it’s possible that SoundHound and companies like it could be blacklisted by China, barring it from executing on its partnerships with companies like Tencent.
Although the de-escalation announced today is positive for SoundHound, I have my doubts about its long-term ability to maintain its competitive edge and to justify its $3.6 billion market capitalization. I would avoid SoundHound stock.
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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tencent. The Motley Fool has a disclosure policy.