Amidst the tumultuous waters of the financial world, Nvidia (NASDAQ: NVDA) has emerged as a phoenix, blazing a trail as the third-most-valuable company globally, boasting a staggering $2.2 trillion valuation, trailing only Apple and Microsoft. Fueling this meteoric rise are Nvidia’s graphics processing units (GPUs), revered by developers as the premier choice for constructing, training, and deploying artificial intelligence (AI) technologies. The past fiscal year witnessed a jaw-dropping 217% surge in the company’s data center revenue, a trend expected to persist into the upcoming fiscal year.
Buoyed by this fiscal windfall, Nvidia displayed generosity at the close of last year, splurging on investments in five AI companies, offering a tantalizing peek into CEO Jensen Huang’s vision of future value creation.
Image source: Nvidia.
Exploring Nvidia’s Recent AI Acquisitions
Nvidia’s unveiling of its inaugural 13F filing with the Securities and Exchange Commission on Feb. 14 exposed a shopping spree in the AI realm during the fourth quarter of 2023 (concluding on Dec. 31), encompassing five lucrative stocks:
- Arm Holdings (NASDAQ: ARM): Designs processors for leading semiconductor companies.
- Nano-X Imaging: Develops AI applications enhancing medical imaging.
- Recursion Pharmaceuticals: Utilizes AI to expedite drug discovery.
- TuSimple Holdings: Focuses on autonomous driving solutions for the trucking sector.
- SoundHound AI (NASDAQ: SOUN): Pioneers conversational AI technologies.
Of these, Arm Holdings received the lion’s share of Nvidia’s investment, with a stake worth $147 million in 2023 ballooning to $254 million at present, following a stellar 88% surge in its stock price in 2024.
Conversely, SoundHound AI received a more modest investment, starting at $3.7 million in 2023 and subsequently growing to $14.3 million after a mind-boggling 296% ascent in its stock price this year.
Arm Holdings: The Jewel in Nvidia’s Crown
Back in 2020, Nvidia’s attempt to procure Arm Holdings for $40 billion hit the rocks as regulators fretted over potential market competition erosion in the semiconductor arena. Arm, renowned for its chip design services catering to global heavyweights like Nvidia and Apple, commands a staggering 99% stake in the smartphone chipset market.
Although Nvidia’s latest H200 AI GPU for data centers is making waves as a worthy successor to the acclaimed H100, the GH200 model, interweaving GPU with an Arm-powered processor, steals the limelight. A dual GH200 configuration offers three times the bandwidth of an H100, rendering it a prime choice for accelerated AI development. Noteworthy is the impending deployment of 24,000 GH200 chips in Germany’s Jupiter supercomputer, underscoring Arm’s deep foray into AI and data centers.
The market veneration of Arm Holdings is palpable, with a lofty $133 billion valuation. Yet, caveats abound as the stock trades at a sky-high price-to-sales (P/S) ratio of 45.5, trumping even Nvidia’s 35.9. Bridging the gap is the divergence in revenue growth, with Arm’s expected 19.6% rise falling short of Nvidia’s hefty 80.1% spike. Caution reigns supreme, advising investors to bide their time for an opportune entry point amid a potential market downturn.
SoundHound AI: Making Waves in the AI Ocean
Despite its compact $2.5 billion valuation, SoundHound AI exudes promise courtesy of its conversational AI technology, adept at voice recognition and response mechanisms.
By servicing stalwarts like Jersey Mike’s, White Castle, and Krispy Kreme in the hospitality sector, SoundHound’s AI streamlines drive-thru, phone, and in-store ordering experiences, bolstered by the innovative Employee Assist feature, expediting tasks ranging from customer service to in-store operations.
A burgeoning automotive segment sees SoundHound’s technology fostering robust virtual assistants for behemoths like Mercedes-Benz and Stellantis. Noteworthy is SoundHound’s recent collaboration with Nvidia’s Drive platform, facilitating generative AI deployment at the edge, eliminating reliance on network connectivity for voice assistant usage. This enhancement broadens functionality horizons, enhancing privacy mechanisms for drivers.
While SoundHound’s valuation skyrockets post a remarkable $45.9 million revenue in 2023, translating to a daunting P/S ratio of 55.5, promise looms large with a mammoth $661 million order backlog in 2023, doubling from the previous year. Such traction hints at prospective rapid revenue scaling, signifying a potential jackpot for long-haul investors, with Nvidia’s aegis providing an added layer of assurance.
