AI Investment Showdown: SoundHound vs. Nvidia
Artificial intelligence (AI) is reshaping multiple industries, impacting everything from transportation to healthcare. According to estimates from PwC, AI could be valued at $15.7 trillion by 2030.
Two companies making strides in AI are SoundHound AI (NASDAQ: SOUN) and Nvidia (NASDAQ: NVDA). Each targets a different area within the AI sector, and both have seen substantial stock growth. Nvidia’s shares have climbed 137% over the past year, while SoundHound’s stock has skyrocketed 730%.
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So, which is the better AI investment? Let’s take a closer look at both companies.
Image source: Getty Images.
Why Consider SoundHound AI?
SoundHound leads the conversational AI market with over 200 enterprise clients enhancing customer service and device interactions. For example, Chipotle employs SoundHound’s technology for automated orders, while Stellantis integrates it for voice commands in their vehicles.
Historically reliant on a few large clients, SoundHound has diversified its revenue streams significantly. Now, only 12% of revenue comes from its top customers, down from 72% last year.
The company is expanding into new industries such as restaurants, financial services, healthcare, and insurance, each contributing between 5% to 25% of sales. This is a major change from last year, when 90% of revenue was from the automotive sector.
In the third quarter, SoundHound’s sales surged 89% to $25.1 million. Management anticipates $165 million in sales by 2025, which would represent a doubling of the estimated $83.5 million in 2024.
Examining Nvidia’s Strengths
Nvidia is at the forefront as the leading semiconductor company for AI. It is estimated that Nvidia’s processors are present in 70% to 95% of AI data centers, securing its current market dominance.
The recent launch of its Blackwell processors has already resulted in demand exceeding supply. With major tech companies racing to develop AI infrastructure, Nvidia’s CEO Jensen Huang predicts that data center spending related to AI will double to $2 trillion over the next five years.
Nvidia’s strong position and the recent announcement of potential $500 billion data center spending in the U.S. could significantly boost demand for its processors as companies like Oracle, Softbank, and OpenAI invest in necessary systems.
Financially, Nvidia is performing exceptionally well. In the third quarter, revenue increased 94% to $35.1 billion, with net income rising 109% to $19.3 billion. The outlook for Nvidia remains robust with anticipated increases in data center investments.
Evaluating the Better Buy
While both companies hold potential for growth as AI continues to develop, Nvidia has a solid edge due to its profitability. Nvidia’s diluted earnings jumped over 100% to $0.78 per share, whereas SoundHound reported a non-GAAP net loss of $0.04 per share. Though SoundHound improved from previous losses, Nvidia clearly stands out in terms of profit.
Moreover, the recent surge in SoundHound’s stock price has led to a high price-to-sales ratio of 74, presenting a steep valuation. In contrast, Nvidia offers a more attractive forward price-to-earnings ratio of 34, compared to the tech-heavy Nasdaq-100 at 26.4, making it a more appealing investment at this time.
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*Stock Advisor returns as of January 27, 2025
Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Nvidia, and Oracle. The Motley Fool recommends Stellantis and has disclosed the following options: short March 2025 $58 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
