Nvidia is sharing its newfound wealth by investing in other artificial intelligence (AI) stocks.
Nvidia (NVDA 2.45%) was a $360 billion company at the beginning of 2023. Since then, its value has increased by $1.8 trillion and is now the third largest company in the world after. apple and microsoft.
Growing interest in artificial intelligence (AI) is a key driver of that value creation. Nvidia makes the industry's most powerful data center graphics processing units (GPUs) that developers use to build, train, and deploy their AI models. Thanks to these chips, Nvidia's data center revenue more than tripled in its fiscal year 2024 (ending January 28), and this momentum is likely to continue in fiscal year 2025.
Nvidia is now using some of its newly acquired assets to invest in other AI companies, which could hint at where the next wave of AI value will be created.
Nvidia will buy 5 AI stocks at the end of 2023
Nvidia filed its first-ever 13-F with the Securities and Exchange Commission on February 14, disclosing new holdings in five different stocks:
- Soundhound AI (Thorn -1.71%)develops voice recognition and conversational AI technology.
- arm holdings, which designs processors for the world's largest chip companies. This was his largest investment for Nvidia, making him worth $147 million at the end of 2023.
- nano-x imaging, using AI to enhance medical images to improve patient outcomes. This stock was his smallest Nvidia investment and was worth less than $400,000 at the end of 2023.
- recursion medicineusing AI to support drug discovery.
- TuSimple Holdingshas developed an autonomous driving platform for the trucking industry.
SoundHound AI stock has been the best performer of the bunch so far, already up 142% in 2024. It values ​​Nvidia's stock 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 and become a conversational AI specialist?
SoundHound is expanding its portfolio of AI products
Most of us are familiar with AI chatbots such as ChatGPT, Gemini, and Claude. They were originally designed to capture text-based prompts and can generate textual content, images, video, and computer code in response to commands. SoundHound focuses on conversational AI designed to recognize and respond to voice-based prompts as well.
This opens up a wide range of possibilities, especially for use cases that require hands-free functionality. For example, a restaurant chain uses SoundHound's Employee Assist technology to quickly answer questions in high-pressure situations, such as when employees are serving customers or completing work tasks. I'm trying to answer.
Similarly, SoundHound's technology is popular with automakers such as: Mercedes-Benz and Stellantis, is using it to power the virtual assistant in the car. This means drivers can instantly get information about the weather forecast, sports scores, local restaurants, as well as information about vehicle features (to name a few).
SoundHound recently announced a new partnership with Nvidia's Drive platform. This will enable automakers to deliver AI at the edge. This means drivers don't need a network connection to use voice assistants, making voice assistants available in more places and increasing data privacy.
The Drive platform is Nvidia's end-to-end solution for automakers looking to equip new vehicles with autonomous self-driving capabilities. Given that Drive already serves many of the world's largest automotive brands, it could become an important distribution channel for SoundHound's technology in the long term.
SoundHound has little revenue and large losses.
SoundHound brought in revenue of $45.8 million in 2023, which was an increase of 47% compared to 2022. Although the company is still in the expansion phase, it ended last year with a $661 million backlog, a figure that doubled from the previous year. End of 2022.
Management's 2024 forecast is for revenue to be approximately $70 million, representing an accelerated growth rate of 54%.
This is great news, but SoundHound lost US$91.7m last year, so its earnings deserve some concern in the short term. It's normal for small technology companies in their growth stages to suffer losses, but SoundHound has just $95.2 million in cash and equivalents on its balance sheet, which means it's heading into more years like 2024. I can't afford it.
Risk-averse investors shouldn't follow Nvidia into SoundHound stock
Considering the financials mentioned above, SoundHound stock is a riskier investment compared to other AI stocks such as Nvidia and Microsoft. The company will likely need a cash injection within the next year or two to continue operating, which creates uncertainty.
That said, Nvidia's investment in SoundHound stock is a huge vote of confidence and could lead to even more unique deals like the one with the Drive platform. Additionally, SoundHound's backlog could lead to faster revenue growth in the coming years.
However, keep this in mind. Nvidia's stake in SoundHound is worth just $8.7 million. Even if it were to drop to zero, it would have virtually no impact on the $2.2 trillion semiconductor giant. This equates to a person with a net worth of $100,000 losing his $0.39, or he loses 39 cents.
Not only does the average investor have fewer resources than Nvidia, but their risk appetite may also be very different. Therefore, SoundHound stock should only be purchased by investors who are prepared for the volatility and possible loss.
Anthony Di Pigio has no position in any stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool recommends Stellantis and recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.