Nvidia is sharing its newfound wealth by investing in other artificial intelligence (AI) stocks.
Nvidia (NVDA 2.45%) It was a $360 billion company at the start of 2023. Since then it has grown in value to $1.8 trillion, and is now the third largest company in the world. apple And Microsoft.
The growing interest in artificial intelligence (AI) is the main driver of this creation. Nvidia makes the industry’s most powerful graphics processing units (GPUs) for data centers, which developers use to build, train and deploy their AI models. Those chips more than tripled Nvidia’s data center revenue in fiscal 2024 (ended Jan. 28), and that momentum looks set to continue into fiscal 2025.
Nvidia is now using some of its newfound wealth to invest in other AI companies, which could signal where the next wave of AI value is born.
Image Source: Nvidia.
Nvidia buys five AI stocks due in late 2023
Nvidia filed its first 13-F with the Securities and Exchange Commission on February 14, and it publicly disclosed new holdings in five different stocks:
- Sound Hound AI (the sound -1.71%)which develops voice recognition and conversational AI technologies.
- Arm Holdingswhich designs processors for the world’s largest chip companies. It was Nvidia’s largest investment, valued at $147 million at the end of 2023.
- Nano X Imaging, which is improving patient outcomes by using AI to enhance medical imaging. The stock was Nvidia’s smallest investment, valued at less than $0.4 million at the end of 2023.
- Recursion Pharmaceuticalswhich is using AI to aid in drug discovery.
- TuSimple Holdingswhich developed an autonomous driving platform for the trucking industry.
Soundhound AI stock is the best performer of the group so far, already up 142% in 2024. That values Nvidia shares at about $8.7 million, which doesn’t sound like much, but SoundHound is only a $1.5 billion company.
So should investors follow Nvidia’s conversational AI expert?
SoundHound has a growing portfolio of AI products.
Most of us are familiar with AI chatbots like ChatGPT, Gemini and Claude. They were originally designed to input text-based gestures, and are capable of generating text content, images, videos and computer code on command. SoundHound focuses on conversational AI, designed to recognize voice-based cues and respond in kind.
This opens up a range of possibilities, especially in use cases where hands-free functionality is required. For example, restaurant chains use SoundHound’s employee assistance technology to help workers get quick answers to questions in high-pressure situations, such as when they’re serving customers or completing operational tasks. have been
Similarly, SoundHound’s technology is popular with automotive manufacturers such as Mercedes-Benz And Stellantes, who use it to power their built-in virtual assistants. This means drivers can instantly get information about their vehicle’s functionality in addition to weather forecasts, sports scores, and information about local restaurants (to name a few capabilities).
SoundHound recently announced a new partnership with Nvidia’s Drive platform, which will allow automakers to provide AI. This means drivers won’t need network connectivity to use their voice assistant, making it available in more places and increasing data privacy.
Drive Platform is Nvidia’s end-to-end solution for car manufacturers looking to install autonomous driving capabilities in their new vehicles. Drive could become an important distribution channel for SoundHound’s technology in the long run, considering it already serves many of the world’s leading car brands.
Image Source: Nvidia.
Soundhound generates very little revenue and big losses.
SoundHound generated revenue of $45.8 million during 2023, which was a 47% increase over 2022. The company is still in the scale-up phase, though it ended last year with a $661 million order backlog — and that number is set to double by the end of 2022.
Management’s forecast for 2024 is at approximately $70 million in revenue, which would represent a rapid growth rate of 54%.
That’s great news, but SoundHound’s bottom line warrants some near-term concern as the company lost $91.7 million last year. While it’s normal for small technology companies to lose money in their growth stages, SoundHound only has $95.2 million in cash and equity on its balance sheet, so it can’t afford another year like this in 2024.
Risk-averse investors should not follow Nvidia in SoundHound stock.
The financial picture described above makes Soundhound stock a riskier investment than other AI stocks like Nvidia or Microsoft. There is a strong possibility that the company will need a cash injection within the next year or two to continue operations, and this creates uncertainty.
At the same time, Nvidia’s investment in SoundHound stock is a big vote of confidence, and it could lead to more unique deals with its Drive platform. In addition, SoundHound’s order backlog could lead to faster revenue growth in the coming years.
But remember this: Nvidia’s stake in SoundHound is only worth $8.7 million. If it goes to zero, it will have virtually no impact on the $2.2 trillion chip giant. That would equate to $0.39 — yes, 39 cents — with a net worth of $100,000.
Not only do the average investors have fewer resources than Nvidia, they also have very different risk appetites. So buying Soundhound stock should be reserved for investors who can stomach volatility, and the possibility of losses.
Anthony DiPizio has no position in any stocks. The Motley Fool holds positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool recommends Stellantis and the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a Disclosure Policy.