Earlier this year, Nvidia (NASDAQ: NVDA) revealed that it was investing capital in several promising companies artificial intelligence (AI) companies. Management clearly believed that the investments would pay off, but also positioned the company as a direct enabler of its end markets.
After all, Nvidia itself is not an AI company. Instead, it supplies the AI industry with crucial components such as graphics processing units, or GPUs. By investing in the overall growth of AI, Nvidia can not only realize a potential return on investment, but also drive long-term demand for its own products.
As enthusiastic as Nvidia management was about its capital allocation decisions, few likely predicted what would happen to any of the investments. Following Nvidia’s $3.7 million investment in February SoundHound AI (NASDAQ: SOUND) saw its valuation increase by 165%. And there could be even more benefits to be gained.
Nvidia has already made millions from this small AI stock
Within weeks of Nvidia announcing its investment in SoundHound, the two companies unveiled a partnership that will see their respective products packaged together, including an in-car voice assistant that uses “a large language model (LLM) entirely on the edge while running on the edge .” Nvidia Drive platform,” SoundHound announced in May.
In short, vehicles running on Nvidia’s Drive platform can leverage SoundHound’s voice recognition platform to provide AI capabilities to the driver and passengers even without an internet connection. The use cases are exciting. You can pull up a playlist of songs from your favorite streaming provider, ask questions about the news or current events, or even chat with your car about its maintenance history and possible repair needs in the future. With SoundHound, your car essentially becomes an AI agent, able to talk and consider almost anything you throw at it – with everything running locally, no connection required.
SoundHound has built a reputation for these types of services. Unsurprisingly, they all deal with the intersection of AI and sound.
Several fast food restaurants are testing their products for drive-thru windows – a smart way to potentially increase order efficiency and reduce operating costs. Technology companies have integrated the software into their applications, allowing users to better interact with their services through natural voice commands. And a host of other companies — from Block Unpleasant Oracle — already use SoundHound to manage their customer service lines.
There’s no doubt that Nvidia’s investment has caused a spike in SoundHound’s valuation. It’s a strong vote of confidence and a promising sign that SoundHound will continue to be able to obtain the crucial components needed to operate and improve its technology. Wall Street analysts expect the company to grow revenue by about 84% in the coming year, from $83 million to more than $150 million.
Should You Buy SoundHound Stock Today?
There’s a lot to like about SoundHound. It is active in the AI space – perhaps the biggest growth opportunity in a generation – and has the backing of major industry suppliers like Nvidia, who put their money where their mouth is. But should you join Nvidia and buy SoundHound stock for your portfolio?
According to data from Grand View Research, the voice AI market is expected to grow nearly 30% annually between 2024 and 2030. So far, SoundHound has actually been able to exceed these growth estimates. But now that prices are 23 times higher than turnover, these high growth figures are probably already priced into the shares. This is especially true when you consider that the company will face increasing competitive pressure from global technology giants, almost all of whom are investing billions in their own voice AI platforms. By comparison, SoundHound’s total research and development budget is only about $56 million.
SoundHound is off to a promising start, but Nvidia’s investment has put it on the map for many growth investors. If it can fend off increasing competition, an investment case could be made for this exciting AI company.
But the steep valuation should cause most investors to look elsewhere. Only if you’re a big fan of SoundHound’s specific technologies and are willing to continue investing through years of potential volatility, you should take a position alongside Nvidia.
Should you invest $1,000 in SoundHound AI now?
Consider the following before purchasing shares in SoundHound AI:
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Block, Nvidia, and Oracle. The Motley Fool has one disclosure policy.
Nvidia bet millions on this AI stock. It’s up 165%. was originally published by The Motley Fool
