SoundHound juiced by fresh Wall Street initiation as a buy

Heavily shorted voice AI software company SoundHound AI soared in early trading after receiving an “overweight” rating from brokerage firm Piper Sandler, which initiated coverage of the stock with a $12 price target, a 25% premium to Friday’s closing price.

Piper analyst James Fish is especially bullish on the company’s potential to boost sales into the fast-food industry. He wrote:

“Labor automation is progressing as AI penetration increases. We think two of the most exciting opportunities for SoundHound are: 1) automating [quick service restaurants], which should help with customer & employee experiences, as well as costs as QSRs can get a significant [return on investment] by deploying SoundHound & reducing employee count.”

While it’s a nice vote of confidence in the shares, the reaction of the price — up 15% at roughly 10:30 a.m. ET — likely owes something to the fact that Fish’s bullish thesis is adding to a squeeze on the stock’s short sellers, who have built up a large position in SoundHound. Nearly 32% of the public float is in the hands of shorts.

When heavily shorted stocks rise, it can generate a rush to exit short trades. To do that, shorts have to purchase the stock, which can cause big spikes in prices if may try to do it at once. Such spikes are commonly referred to as “short squeezes.”