Nvidia (NASDAQ: NVDA ) And Sound Hound AI (NASDAQ:SOUN) This year has set the stock market on fire with impressive gains so far, although a closer look at the share trajectories of these two companies suggests that their upward momentum can be attributed to different reasons.
90% of Nvidia's profits in 2024 are the result of the company's impressive top- and bottom-line growth, driven by hot demand for processors to power its graphics processing units (GPUs) and artificial intelligence (AI) servers.
SoundHound AI, on the other hand, came into the limelight in February this year when it was revealed that Nvidia owns a stake in the company. Soundhound stock subsequently surged an impressive 347 percent in February.
SoundHound AI is delivering healthy growth thanks to the increasing deployment of its AI voice recognition technology across multiple industries, including automotive and restaurants. But Nvidia's investment brought the stock under greater scrutiny, and a lower-than-expected earnings report for the fourth quarter of 2023 sent its shares packing in March.
So, even though Soundhound's shares are up 158% in 2024, they're down more than 38% since mid-March. But is this pullback an opportunity for investors to buy the stock? Or should they prefer Nvidia to take advantage of the AI boom? Let's find out.
The Case for SoundHound AI
May turned out to be a great month for SoundHound AI as the stock seems to have regained its mojo.
The first quarter 2024 results, which were released on May 9, have once again boosted investor confidence. The stock soared 73% year-over-year thanks to an $11.6 million increase in revenue.
Adjusted net loss decreased a penny to $0.07 per share. SoundHound raised the midpoint of its 2024 revenue guidance to $71 million from an earlier estimate of $70 million.
The updated revenue guidance will translate to 55% year-over-year growth. For comparison, SoundHound's top line grew by 47% in 2023, which means the company's growth is set to accelerate this year. And management expects to exceed $100 million in revenue in 2025, meaning it aims to grow revenue by more than 40% next year as well.
The reason Soundhound is so confident in its future is because of the potential revenue pipeline improvements and partnerships with big players like Nvidia and automakers. Stellantes. In March of this year, the company said its generative AI voice assistant, SoundHound Chat AI, is on Nvidia's Drive automotive platform. And Stellantis has already begun integrating SoundHound AI voice recognition support into its vehicles.
Quick service restaurants are also adopting this technology to take food orders. Overall, SoundHound sees a $140 billion total addressable market for voice recognition AI across multiple end markets, so there's a good chance it will continue to grow at a healthy pace in the long term and become a top AI remains stock.
The case of Nvidia
With an estimated 98% market share for data center GPUs, Nvidia offers investors a compelling way to capitalize on the growing demand for AI infrastructure. Training the large language models and deploying the technology that SoundHound and others are offering wouldn't be possible without the computational power of Nvidia's chips.
Nvidia has a technological advantage over rival chipmakers trying to enter the AI chip market, and the company is expected to maintain its dominance with the launch of new chips later this year. That's why Nvidia is expected to grow faster than SoundHound.
Revenue in fiscal 2024 (which ends in January of this year) grew 126% year-over-year to $60.9 billion, far ahead of Soundhound AI's growth last year.
Nvidia's adjusted earnings rose 288% year over year to $12.96 per share. SoundHound reported a loss of $0.40 per share for 2023 and is not expected to turn profitable anytime soon. Nvidia's revenue is expected to remain high over the next two years.
Nvidia's strong earnings power, its impressive market share, and the AI chip market — which is expected to grow 38 percent annually through 2032 and generate $372 billion in annual revenue — indicate that It can maintain its healthy growth for a long time. Meanwhile, SoundHound AI is expected to compete with well-heeled tech giants as well as the likes of OpenAI.
Potential SoundHound investors should note that it is currently a very small company, while Nvidia is an established corporation with a wide moat in AI chips. That's why the latter looks like the safer AI play right now, especially considering the value of the two stocks.
Decision
Nvidia's price-to-sales (P/S) ratio of 39 makes the stock more expensive than shares of SoundHound, which trades at 27 times sales. Given its rapid growth, rapidly improving bottom line, and near-monopoly in AI chips, the chipmaker's overvaluation is justified, so if we take a look at their forward sales multiples It is the cheaper of the two.
All of this indicates that Nvidia is the better AI stock to buy, and investors should have an easy choice considering the points discussed above. Nvidia's high price-to-sales ratio is justified by its rapid growth and strong market position in AI chips. Thus, despite its high price, Nvidia appears to be a safer and more promising AI investment.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Nvidia. The Motley Fool recommends Stellantis. The Motley Fool has a Disclosure Policy.
The Better Artificial Intelligence Stock: Nvidia vs. SoundHound AI was originally published by The Motley Fool.