Nvidia recently bought 5 artificial intelligence (AI) stocks. These 2 stand above the rest.

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Nvidia is spreading some of its fortune by investing in other AI stocks.

Nvidia (NVDA -0.71%) has created an incredible amount of value over the past 18 months. It was a $360 billion company at the start of 2023, but is now standing by. apple And Microsoft In the $3 trillion club.

Nvidia's stock price rose 826% during that period, driven by red-hot demand for its data center graphics chips (GPUs), which are designed to generate artificial intelligence (AI) models. In the most recent first quarter of fiscal 2025 (ended April 28), they sent Nvidia's data center revenue up 427% year over year, to a record $22.6 billion.

Late last year, Nvidia decided to spread some of its newfound wealth by investing in five other AI companies. These moves could indicate where CEO Jensen Huang believes the next wave of value in the AI ​​space will be created.

Image Source: Nvidia.

Nvidia bought five stocks at the end of 2023.

According to a 13F filing with the Securities and Exchange Commission on February 14, Nvidia invested in the following five stocks in the fourth quarter of 2023:

  1. Arm Holdings (ARM 2.87%)which designs processors for chip giants like Nvidia.
  2. Sound Hound AI (the sound -2.52%)which develops virtual assistants based on its conversational AI technology.
  3. Nano X Imagingwhich is improving medical imaging using AI.
  4. Recursion Pharmaceuticalswhich is accelerating drug discovery through AI.
  5. TuSimple Holdings, which develops autonomous driving for the trucking and logistics industries. However, Nvidia recently sold that holding, according to its latest 13F filing released on May 15.

Nvidia's position in Arm was worth $147 million at the end of 2023, but has grown to $268 million so far in 2024 thanks to a 98% rise in the stock. Arm is Nvidia's largest holding.

SoundHound received a smaller investment, with Nvidia's position at $3.7 million at the end of 2023. But SoundHound's stock is up 123% so far this year, valuing Nvidia's holdings at $8 million.

Why Arm and Soundhound stand out among the four stocks Nvidia owns

1. Arm Holdings

Arm created the architecture that companies like Nvidia, Advanced Micro Devices, and even iPhone giant Apple uses it to design its own chips. Four years ago, Nvidia tried to buy Arm outright for $40 billion, but the deal fell through because regulators felt it was anti-competitive. Considering Arm now has a market cap of $143 billion, Nvidia missed out on a real bargain.

Arm is the world's most popular architecture for central processing units (CPUs). A staggering 99% of smartphones use ARM-made chips, and the company's CEO recently told Reuters it could capture 50% of the Windows PC market within five years. Microsoft is driving demand for Arm's technical expertise as it increasingly integrates AI into the Windows operating system (and its own PCs and devices), which calls for next-generation chip hardware.

Nvidia recently launched a new GPU architecture called Blackwell, which is the basis of its latest GB200 superchip. The GB200 combines two Nvidia GPUs with dual-arm designed CPUs, capable of inferring AI models five times faster than its H100 GPU, currently the dominant AI data center chip. Therefore, Arm is not only a dominant force in consumer electronics, but also in the servers responsible for developing the world's most advanced AI models.

Arm reported revenue of $3.2 billion during fiscal 2024 (ending March 31), a 21 percent increase over fiscal 2023. While this is a solid growth rate, and the company is undoubtedly important to the future of AI, investors should be aware of this. The stock is quite expensive.

Based on Arm's $3.2 billion in revenue and its $143 billion market cap, its stock trades at a price-to-sales (P/S) ratio of about 44. Its revenue has increased by 98% in the current financial year. In other words, it's hard to justify paying a higher price for Arm than Nvidia when Arm is growing its revenue at a much slower pace.

Remember, Nvidia's late 2023 investment in Arm stock was roughly half the price it trades for today, representing a more reasonable valuation. It doesn't look that attractive anymore, so investors should probably wait for a pullback before buying.

2. Sound Hound AI

SoundHound AI is using voice recognition technology to create a portfolio of AI-powered virtual assistants. They can recognize and respond in kind to voice-based gestures, which means they can carry out an entire conversation without the user typing a single word. The company has developed its own AI models, but it also integrates well-known third-party models such as OpenAI.

The restaurant industry is using SoundHound to autonomously accept customer orders over the phone, at the drive-thru and in-store. SoundHound also began deploying a new employee assistance tool, which workers can call up at any time for quick access to everything from store policies to food preparation instructions. Krispy Kreme, Chipotle Mexican GrillAnd Papa John's SoundHound has only a few users.

SoundHound's technology is already live in 10,000 locations, with 100,000 more in the pipeline. However, the company believes its addressable market consists of more than 1 million restaurants and 30 million other businesses in North America, which translates to a $100 billion opportunity.

The company also created an AI voice assistant for cars. Manufacturers prefer. Mercedes-Benz And Stellantes (Alfa Romeo, Jeep, Dodge) already use it, allowing drivers to ask questions on a variety of topics, and even access information about features in their vehicle.

SoundHound has now partnered with Nvidia's Drive platform to deliver AI at the edge, meaning drivers won't need network connectivity to access their AI assistant. This broadens the number of use cases and also improves privacy as communication remains in a closed loop.

The stock trades at a slightly more reasonable valuation than Arm. Based on its trailing 12-month revenue of $50.8 million and a market capitalization of $1.5 billion, its P/S ratio is just over 30. However, the company has been losing a lot of money, including $33 million in the most recent first quarter. 2024 only. With only $226 million in cash on hand, it may have to raise more cash through an equity offering in the future, which would dilute existing investors. This is a significant risk to consider.

On the plus side, the company has a large order backlog of $682 million, which should turn into revenue over time. However, investors who want to follow Nvidia in this stock should keep their position size relatively small to account for the risks.

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