Nvidia’s market capitalization has skyrocketed from $360 billion to over $2.2 trillion in just 18 months, thanks to its dominance in the artificial intelligence (AI) space. The company designs powerful graphics processing units (GPUs) for data centers, which has led to a surge in its data center revenue. Nvidia recently made significant investments in other AI companies, including Arm Holdings, Recursion Pharmaceuticals, Nano-X Imaging, TuSimple Holdings, and SoundHound AI. Despite Arm being its largest position, SoundHound AI has been the best performer, with a 160% increase in 2024.
SoundHound AI specializes in conversational AI, which uses voice recognition technology to create various business applications. Its technology is used by restaurant chains for customer orders and employee assistance, as well as in new cars for voice assistants. The company generated $11.6 million in revenue in the first quarter of 2024, a 73% increase from the previous year. It also has a significant order backlog of $682 million, signaling strong growth potential. However, the company is currently in a scale-up phase and is investing heavily, leading to losses at the bottom line.
Despite its potential, SoundHound AI is considered a speculative bet due to its current financial situation. With limited cash on hand and growing losses, the company may need to raise more capital to sustain its operations. Management expects to achieve profitability based on adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) in 2025, but there is no guarantee. Investors should be cautious due to the company’s high price-to-sales (P/S) ratio of 35, compared to more established companies like Nvidia and Microsoft. SoundHound AI’s stock may be suitable for investors with a high risk tolerance.
While Nvidia’s investment in SoundHound AI highlights the potential of the company, investors should carefully evaluate the risks before investing. The Motley Fool Stock Advisor team has identified 10 stocks they believe will provide substantial returns in the coming years, and SoundHound AI did not make the list. Investors looking to invest in AI companies should consider factors such as financial stability, growth potential, and competitive positioning before making a decision. Nvidia’s stake in SoundHound AI may be relatively small compared to its overall market capitalization, and investors should consider the risks before following Nvidia’s lead.
