Investors who missed out on SoundHound AI before its incredible stock market rally should buy the graphics expert now.
Soundhound AI (Thorn -7.31%) has been one of the hottest stocks on the market over the past six months, rising nearly 128% during this period. But if you missed out on this impressive rise in AI stocks and are thinking of buying now, you may want to look elsewhere.
That's because SoundHound's stock price has fallen sharply of late on concerns that its growth isn't strong enough to support its rich valuation. Shares of the company, which provides voice AI solutions, have fallen nearly 55% in the past month. Despite this sharp decline, SoundHound AI stock trades at a multiple of 22x. This is significantly higher than the US technology sector's price-to-sales (P/S) ratio of 7.2 times.
Of course, SoundHound also claims to have a solid revenue pipeline, with solid revenue growth expected in 2024 and beyond. However, SoundHound is a small company and could well face stiff competition from wealthy rivals. That's why investors looking to buy AI stocks now should, for example, Nvidia (NVDA -10.01%). Let's see why.
Nvidia is growing at a much faster pace than SoundHound AI
Nvidia is a dominant player in the fast-growing AI chip market. It holds an estimated 90%+ share of the market, and as a result, the business has grown rapidly in recent quarters.
As the chart above shows, Nvidia's growth is much stronger than SoundHound AI's growth. That's despite the fact that Nvidia is a much larger company, generating nearly $61 billion in revenue in fiscal year 2024 (ending in January of this year), a 126% increase over the previous year. Meanwhile, SoundHound AI ended 2023 with a 47% increase in revenue to $46 million.
Moreover, analysts predict faster growth in Nvidia's revenue this fiscal year as well. The company's sales are expected to increase 81% to $110.5 billion in fiscal 2025, which would outpace the 51% sales growth SoundHound is expected to realize this year. Therefore, with his Nvidia's solid share in the AI ​​chip market, which is expected to record an annual growth rate of 61% annually until 2027, NVIDIA is very well positioned to maintain its healthy growth momentum.
Additionally, Nvidia is a highly profitable company. Fiscal 2024 non-GAAP gross margin was reported at 73.8%, a significant increase from 59.2% in the prior year. This significant increase in the company's profit margins can be attributed to his Nvidia's strong pricing power in AI chips, with adjusted net income in fiscal 2024 increasing from his $8.4 billion in the previous year to his $32.3 billion. This explains why the dollar surged.
Meanwhile, SoundHound AI reported a net loss of $89 million in 2023. That was lower than the $117 million loss it reported in 2022, but analysts don't expect it to turn profitable anytime soon.
Meanwhile, NVIDIA is expected to achieve nearly 38% annual profit growth over the next five years. However, don't be surprised by Nvidia's rapid growth. That's because Nvidia is on track to benefit from larger addressable opportunities, including markets like gaming, automotive, and digital twins.
Specifically, the global GPU market is projected to grow at an annual rate of 34% until 2032, generating revenue of $773 billion at the end of the forecast period. We have already seen that Nvidia is the leading company in his AI GPU market, and it holds a similar position in the personal computer (PC) GPU market. This market presents another lucrative growth opportunity for Nvidia.
Similarly, the digital twin market presents a new multi-billion dollar growth opportunity for the company. Meanwhile, SoundHound AI predicts that its target market will grow to $160 billion by 2026. All of this shows that Nvidia has room to grow in the long term. That's why choosing the chipmaker over SoundHound seems like a smart move, especially considering the future valuation multiples of both companies.
This valuation makes buying Nvidia stock easy
Nvidia's sales multiple is running at 36x, which is higher than SoundHound's subsequent sales multiple. However, the situation changes when we focus on future sales multiples.
The expected price/earnings ratios for both stocks are the same. Additionally, NVIDIA's strong profitability speaks to why the company trades at 36x forward earnings, lower than the US technology sector's 45x forward earnings multiple.
We already know that Nvidia is the better growth stock when compared to SoundHound, and it's likely to continue to grow at a faster pace. So investors who missed out on SoundHound's rally and are looking for AI stocks to buy now would do well to choose Nvidia, which seems well-positioned to benefit investors in the long run. .