One thing to remember, is that the speedometer needle movement is a slave to the spinning of the cable. If the speedometer needle is bouncing, then the cable is not spinning at a consistent rpm, but rather it is likely winding up a bit, and then releasing a bit, over and over while spinning. If the cable or the sheath are worn enough to create additional friction somewhere along the length, then the cable rpms can oscillate, thereby causing a bouncy speedometer needle. Even new properly lubed cables can oscillate if the routing has any spots where the cable is binding a bit too much inside the sheath. Some speedometer cables and sheaths develop wear spots that no amount of lubing can fix, and the only solution is to replace both, which is easy since they are readily available and relatively inexpensive.
Also, the speedometer (and the tachometer) is internally damped to help extend the life of the instrument against the vibration that is present in motorcycles, rather than to help steady the needle when driven by a cable that is oscillating. I've taken several speedometers apart, some that looked pretty bad on the outside, but the damping action of the needle was still functional, so I would make certain that the issue isn't with the cable before experimenting with the speedometer itself.
One quick test for the speedometer is to remove it and temporarily spin it using an electric drill, if the needle climbs to a certain steady speed indication, then it's probably without issue.