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Exploring Nvidia’s Dive into AI Stocks The Rise of Nvidia’s AI Ventures: A Dive into Investment Strategies

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Nvidia (NASDAQ: NVDA) rose from a $360 billion company at the onset of 2023 to a staggering $1.8 trillion, now ranking as the third-largest global company trailing only Apple and Microsoft

The surge in artificial intelligence (AI) interest served as the catalytic force driving this value escalation. Nvidia specializes in the creation of the industry’s most potent graphics processing units (GPUs) for data centers, pivotal components utilized by developers in constructing, training, and deploying AI models. The profound success of these chips propelled Nvidia’s data center revenue past triple the figures in fiscal 2024 (ending Jan. 28), a trajectory predicted to persist into fiscal 2025.

Consequently, Nvidia is leveraging its newfound financial prowess to venture into investments in other AI companies, potentially offering insights into where the next wave of AI value might be harnessed.

Nvidia Headquarters

Image source: Nvidia.

Nvidia’s Acquisition of Five AI Stocks at the Brink of 2023

On Feb. 14, Nvidia unveiled its maiden 13-F submission to the Securities and Exchange Commission, disclosing fresh investments in five distinct stocks:

  1. SoundHound AI (NASDAQ: SOUN), known for its voice recognition and conversational AI technologies.
  2. Arm Holdings, a premier processor designer catering to the globe’s leading chip companies. This investment emerged as Nvidia’s most substantial with a value of $147 million by late 2023.
  3. Nano-X Imaging, an entity leveraging AI to augment medical imaging outcomes and health. Positioned as Nvidia’s most modest investment, valuing less than $0.4 million at the close of 2023.
  4. Recursion Pharmaceuticals, utilizing AI for streamlining drug discovery processes.
  5. TuSimple Holdings, forerunner in crafting an autonomous driving framework tailored for the trucking sector.

Among these ventures, SoundHound AI displayed remarkable performance, boasting a hefty 142% surge in 2024. This upsurge has propelled Nvidia’s stake to an estimated $8.7 million, an impressive feat considering SoundHound’s relatively modest $1.5 billion valuation.

Given these developments, is following Nvidia’s lead into the world of conversational AI a wise pursuit for investors?

SoundHound’s Diverse Portfolio of AI Solutions

While AI chatbots like ChatGPT, Gemini, and Claude have garnered familiarity for their text-based interactions, SoundHound specializes in conversational AI. Tailored for recognizing voice prompts and eliciting relevant responses, this niche opens avenues where hands-free functionality proves indispensable.

For instance, in settings demanding efficient real-time assistance like eateries, SoundHound’s Employee Assist technology equips staff with rapid solutions amidst high-pressure situations. In the automotive realm, brands such as Mercedes-Benz and Stellantis deploy SoundHound’s technology to empower in-car virtual assistants. The versatile technology furnishes drivers with instant insights into vehicle functionality, weather updates, sports scores, and nearby dining establishments.

A recent collaboration between SoundHound and Nvidia’s Drive platform signifies a milestone. Enabling edge AI for car manufacturers, this partnership ensures seamless voice assistant operation sans network dependency, expanding operational realms and fortifying data privacy. Nvidia’s Drive stands as an end-to-end solution catering to automakers keen on integrating autonomous driving capabilities into their vehicles, potentially transforming into a pivotal distribution avenue for SoundHound’s offerings.

Range Rover and Jaguar cars in front of Nvidia headquarters.

Image source: Nvidia.

The Financial Portrait of SoundHound: Revenue and Challenges

In 2023, SoundHound amassed revenue of $45.8 million, marking a 47% leap from the preceding year. Despite this growth trajectory, the company remains in the scaling phase, concluding the year with a notable $661 million order backlog, a figure that doubled over 2022.

Projections for 2024 envisage revenues of approximately $70 million, hinting at a brisk growth rate of 54%. However, tempered optimism arises concerning SoundHound’s bottom line, with a staggering $91.7 million loss recorded in the past year. While losses are commonplace for burgeoning tech enterprises, SoundHound’s cash reserves of $95.2 million signal a precarious stance, necessitating prudence to avert a replicating scenario in 2024.

Cautions for Risk-averse Investors Delving into SoundHound Stock

Attempting a foray into SoundHound stock poses risks for conservative investors compared to stalwarts like Nvidia or Microsoft reflected in the financial uncertainty surrounding the company necessitating potential cash infusions in forthcoming years, engendering a climate of ambiguity.

Despite these uncertainties, Nvidia’s foray into SoundHound stock heralds a resounding vote of confidence, fostering prospects for innovative collaborations akin to the Drive platform alliance. Furthermore, reinforced by SoundHound’s thriving order backlog, anticipations for accelerated revenue growth in subsequent years are within reach.

However, let’s not forget, Nvidia’s $8.7 million stake in SoundHound is but a fraction. Should it plummet into oblivion, the repercussions on the $2.2 trillion behemoth would be akin to a mere 39 cents lost to an individual of $100,000 net worth.

Considering the differential risk appetite and resource limitations between an average investor and Nvidia, venturing into SoundHound stock is a domain best reserved for those acclimated to volatility and probable losses.

Contemplating a $1,000 Investment in SoundHound AI – an Analyst’s Perspective

Before delving into SoundHound AI stocks, ponder on this insight:

The Motley Fool Stock Advisor analysts have pinpointed the purported 10 best stocks for current investors, with SoundHound AI just falling short of the roster. The forecast foretells substantial returns from these distinguished stocks in the ensuing years.

The Stock Advisor service extends investors an easy-to-follow roadmap to success, brimming with portfolio construction tips, analyst updates, and bi-monthly stock recommendations. Since 2002, the service has tripled the returns of S&P 500*.

Explore the 10 stocks

*Stock Advisor returns as of April 4, 2024

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool holds positions in and endorses Apple, Microsoft, and Nvidia. The Motley Fool advocates for Stellantis and suggests the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool abides by a disclosure policy.

Views and opinions expressed here represent the author’s thoughts and do not necessarily align with those of Nasdaq, Inc.

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