Nvidia Sells SoundHound Stake: A Closer Look at AI Investments
Nvidia (NASDAQ: NVDA) is a leader in providing powerful data center chips essential for developing artificial intelligence (AI) models. Over the past two years, the company has experienced a valuation increase exceeding $2.2 trillion, fueled by significant sales growth.
By late 2023, Nvidia began allocating some of its substantial profits into smaller AI firms. Notably, it invested in SoundHound AI (NASDAQ: SOUN), a prominent developer in conversational AI technologies. However, Nvidia’s recent 13F filing for the period ending December 31 revealed that it had completely divested its share of SoundHound by the end of the year.
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SoundHound’s stock reached a record peak in December, but it has since plunged over 64%. This raises questions: Is this a potential buying opportunity for investors, or does Nvidia’s exit imply caution? Let’s explore further.
Specialized in Conversational AI
SoundHound AI aims to integrate conversational AI into everyday life, enabling users to interact with intelligent software simply by using their voices. Notably, over 30% of the top 20 quick-service restaurants globally leverage SoundHound’s technology. Major automotive manufacturers, including Hyundai and Stellantis (parent company of Chrysler, Jeep, and Dodge), also utilize their services.
Many restaurants employ SoundHound to streamline food ordering processes—whether in-store, by phone, or at drive-thrus—thereby reducing employee workloads. Additionally, the company features a tool called Employee Assist, which is a voice-activated virtual assistant designed to help staff understand menu items and store policies to enhance customer service. SoundHound’s technology is currently operational in 10,000 locations, including popular chains such as Chipotle, Krispy Kreme, Papa John’s, and, set for the fourth quarter of 2024, Burger King.
On the automotive front, SoundHound’s Chat AI assistant allows drivers to obtain information hands-free, helping them find nearby restaurants or check flight statuses. This customizable, white-label solution can adapt its personality to different car types, making it suitable for family vehicles or sports cars.
In January, SoundHound introduced an in-vehicle commerce platform allowing drivers to order food without contacting anyone. This tool integrates with the vehicle’s GPS, so even in unfamiliar locations, users can easily request meals from nearby establishments.
The reliability of SoundHound’s conversational AI software is bolstered by its Polaris speech recognition model, boasting 20% higher accuracy than comparable models from Alphabet‘s Google and up to 36% more accuracy than OpenAI’s Whisper model. Maintaining this edge positions SoundHound favorably for businesses looking to incorporate AI solutions into their workflows.
Image source: Getty Images.
Revenue Growth for SoundHound
In 2024, SoundHound achieved a remarkable milestone, with revenue increasing by 85% to $84.7 million. This rate surpasses the prior year’s growth of only 47%.
The company’s diversification of revenue sources was bolstered by the acquisition of Amelia, another conversational AI firm, in August 2023. This strategic move enabled SoundHound to extend its reach beyond restaurants and automotive applications into sectors like financial services and healthcare. Consequently, the company’s largest client contributed just 14% of total revenue in 2024, down from over half of total revenue in 2023.
Additionally, SoundHound ended the year with an impressive $1.2 billion order backlog, a 75% increase since the prior year. Management projects that this backlog will convert into revenue over the next six years, suggesting substantial future earnings potential.
Guidance for 2025 indicates possible revenue generation of up to $177 million, indicating a growth acceleration of approximately 109%.
However, a significant concern for investors exists: SoundHound is incurring heavy losses. The company’s net loss under generally accepted accounting principles (GAAP) reached $350.6 million in 2024, marking a startling 294% increase year-over-year. Even on a non-GAAP basis, which factors out one-time and non-cash expenses like stock-based compensation, the loss amounted to $69.1 million. With only $198 million in cash at the year’s end, sustainability under current loss rates could be problematic.
SoundHound Stock Valuation Concerns
Even with a 64% decline from its peak, SoundHound stock remains relatively expensive. At a market capitalization of $3.1 billion, the stock trades at a price-to-sales (P/S) ratio of 34.2 based on 2023 revenue.
This valuation sits significantly higher than peers in the AI market, many of which are established giants with long-standing revenues totaling in the hundreds of billions. For context, SoundHound’s P/S ratio is approximately 68% greater than that of Nvidia, a market leader recognized for its quality and success.
SOUN PS Ratio data by YCharts
Using projected 2025 revenue of $177 million, SoundHound’s forward P/S ratio decreases to 17.9, yet it still significantly exceeds Nvidia’s forward P/S ratio of 12.7.
The reasons behind Nvidia’s decision to sell its entire stake in SoundHound remain unclear. The data indicates that the chipmaker held just a 1.73% share, suggesting that valuation may have played a role in the decision-making process.
Consider SoundHound AI: Investment Potential and Market Analysis
Even with the potential of owning a million shares valued at just $14.8 million at today’s prices, a complete loss wouldn’t significantly impact the $2.6 trillion tech giant. However, it raises concerns regarding SoundHound’s valuation, which could serve as a headwind, potentially hindering further upside. Regular investors may want to proceed with caution, especially following Nvidia’s recent exit from the picture.
Is it Time to Invest $1,000 in SoundHound AI?
Before making any investments in SoundHound AI, consider the following:
The Motley Fool Stock Advisor analyst team recently identified their top 10 best stocks to buy right now, and SoundHound AI did not make the list. The stocks that were selected could provide significant returns in the coming years.
For context, consider this: when Nvidia was included on that list on April 15, 2005, a $1,000 investment would have grown to a staggering $709,381 today. *
Stock Advisor offers investors a straightforward approach to building a successful portfolio, including regular updates from experts and two new Stock picks each month. Since its inception in 2002, the Stock Advisor service has more than quadrupled the returns of the S&P 500. Don’t miss the latest top 10 list; it’s available to you as a member of Stock Advisor.
* Stock Advisor returns as of March 10, 2025.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is also a member. Anthony Di Pizio has no position in any of the mentioned stocks. The Motley Fool holds positions in and recommends Alphabet, Amazon, Chipotle Mexican Grill, Microsoft, and Nvidia. They also recommend C3.ai, Restaurant Brands International, and Stellantis. Additionally, they recommend certain options on Microsoft and Chipotle Mexican Grill. The Motley Fool maintains a disclosure policy.
The views and opinions expressed herein represent those of the author and do not necessarily reflect those of Nasdaq, Inc.
