Nvidia’s market capitalization has grown significantly in just 18 months, reaching over $2.2 trillion, with much of this value creation attributed to artificial intelligence (AI). The company designs powerful GPUs for data centers that are used in building, training, and deploying AI models. Its data center revenue soared by 217% in fiscal 2024, and this momentum is expected to continue in fiscal 2025. Nvidia has also been investing in other companies in the AI industry, including Arm Holdings, Recursion Pharmaceuticals, Nano-X Imaging, TuSimple Holdings, and SoundHound AI.
SoundHound AI, a company specializing in conversational AI, has shown strong performance, with its stock price up 160% in 2024. This growth is fueled by the widespread adoption of AI technologies, such as ChatGPT, and the use of voice recognition for various business applications. SoundHound’s technology is utilized by restaurant chains, automakers, and other industries to improve customer interactions and streamline processes. The company has also partnered with Nvidia Drive to develop an end-to-end autonomous vehicle platform.
Although SoundHound AI generated $11.6 million in revenue in the first quarter of 2024, it is still in the scale-up phase and is investing significantly to support its growth. The company reported a loss of over $33 million in that quarter, despite revenue growth of 73%. It currently has a modest cash reserve, and its ability to reach profitability remains uncertain. The stock trades at a high price-to-sales ratio compared to industry peers, making it a speculative bet for investors.
While Nvidia’s investment in SoundHound AI suggests confidence in the company’s potential, investors should exercise caution due to the current high valuation and the risks associated with a company in the scale-up phase. SoundHound AI’s limited cash reserves and ongoing losses raise concerns about its ability to reach profitability in the near future. It may be prudent for investors with a high risk tolerance to consider waiting for a better entry point or for the company to demonstrate sustainable growth and financial performance.
The Motley Fool’s Stock Advisor analyst team has not included SoundHound AI among their top 10 stock picks, emphasizing the importance of thorough research and consideration before investing in a company. While Nvidia’s investment in SoundHound AI may provide some validation, it is essential for investors to evaluate the company’s financials, growth prospects, and market position before making an investment decision. SoundHound AI’s potential success hinges on its ability to navigate the competitive AI landscape and demonstrate a path to profitability.
