Nvidia’s AI Investments: A Closer Look at the Six Companies It’s Betting On
Nvidia (NASDAQ: NVDA) has become a titan in the tech world, with a staggering market capitalization of $3.3 trillion as of this writing. What’s even more remarkable is that $3 trillion of this value was added in just the past two years. The company’s dominance in the artificial intelligence (AI) space, particularly through its cutting-edge graphics processing units (GPUs) for data centers, has been the driving force behind this meteoric rise.
But Nvidia isn’t just sitting on its success. Over the past year, CEO Jensen Huang has been spreading the company’s wealth by investing in other AI-focused companies. According to Nvidia’s latest 13-F filing with the Securities and Exchange Commission (SEC), the company now owns stakes in six AI-related stocks. Let’s dive into these investments and what they mean for Nvidia and the broader AI industry.
The Six AI Stocks Nvidia Owns
Nvidia began its foray into investing in AI stocks at the end of 2023. As of its most recent SEC filing, the company has stakes in the following six companies:
- Applied Digital Corp: Specializes in building data centers for its customers.
- Arm Holdings: Assists semiconductor companies in designing advanced computing chips.
- Nano-X Imaging: Develops AI software aimed at improving the efficiency of medical imaging.
- Recursion Pharmaceuticals: Uses AI to revolutionize the drug discovery process.
- Serve Robotics: Focuses on creating autonomous delivery robots.
- SoundHound AI (SOUN): A leader in conversational AI technologies.
Among these, Arm Holdings received the largest investment, with Nvidia’s position valued at $280 million at the end of the third quarter of 2024 (September 30). This accounts for more than half of the total value of Nvidia’s AI investment portfolio. Arm’s stock has surged approximately 77% since Nvidia’s purchase, but that’s overshadowed by the 271% return generated by SoundHound AI. While Nvidia’s stake in SoundHound is relatively small—worth just $13.6 million based on its current stock price of $7.88—it has clearly captured the attention of investors.
SoundHound AI: A Leader in Conversational AI
While many generative AI applications excel at processing text-based prompts, SoundHound AI stands out as a leader in conversational AI, which focuses on understanding and responding to voice prompts. This technology has found applications in several industries, including automotive, hospitality, and quick-service restaurants.
SoundHound recently acquired Amelia, another company specializing in conversational AI. This acquisition has allowed SoundHound to expand its reach into new sectors such as financial services, insurance, and healthcare. Amelia’s expertise in creating AI-powered virtual agents is helping SoundHound diversify its offerings and customer base.
In the automotive sector, SoundHound’s software is used by major brands like Mercedes-Benz and Stellantis (the parent company of Jeep, Dodge, and Chrysler). Its Chat AI product enables these automakers to integrate AI voice assistants into their vehicles, allowing drivers to request real-time information on topics like weather, stock market updates, and flight statuses. Additionally, SoundHound’s Vehicle Intelligence software eliminates the need for physical instruction manuals by providing instant, voice-activated access to information about a car’s features and functions.
In the restaurant industry, SoundHound’s AI solutions are used by popular chains such as Chipotle, Krispy Kreme, and Papa John’s. The company offers an AI-powered ordering system that can handle phone, in-store, and drive-thru orders without human intervention. It also provides a product called Employee Assist, which helps restaurant staff access information about store policies or menu items on demand.
SoundHound’s Financial Growth
SoundHound’s financial performance has been impressive. The company reported a record $25.1 million in revenue during the third quarter of 2024, an 89% increase compared to the same period last year. This growth was partly driven by the inclusion of revenue from Amelia for the first time.
The acquisition of Amelia has also helped SoundHound diversify its revenue streams. A year ago, 90% of the company’s revenue came from the automotive sector. Now, six different industries each account for between 5% and 25% of its total revenue. This diversification has been a key factor in SoundHound’s decision to significantly raise its revenue guidance for 2024 and 2025.
For 2024, SoundHound now expects to generate between $82 million and $85 million in revenue, up from its previous forecast of $80 million. This represents an 82% increase compared to 2023 at the midpoint of the range. Looking ahead to 2025, the company projects revenue of $155 million to $175 million, an acceleration of 97% at the midpoint. Additionally, SoundHound has an order backlog exceeding $1 billion, which it plans to convert into revenue over the next six years.
The Risks of Investing in SoundHound
Despite its impressive growth, SoundHound is not without challenges. The company reported a loss of $21.7 million on a generally accepted accounting principles (GAAP) basis during the third quarter, despite generating $25.1 million in revenue. With only $136 million in cash on hand, SoundHound cannot sustain such losses indefinitely.
To address this, the company recently announced a new at-the-market equity facility, which will allow it to raise up to $120 million by issuing additional stock. While this move will help secure SoundHound’s financial future, it will also dilute the value of existing shares, potentially leading to losses for current investors.
SoundHound’s stock is also expensive by traditional valuation metrics. Based on its trailing 12-month revenue and current market capitalization of $3.2 billion, the stock trades at a price-to-sales (P/S) ratio of 37.5. This is higher than Nvidia’s P/S ratio, despite Nvidia’s decades-long track record of success, robust financials, and industry-leading AI chips.
While SoundHound’s revenue forecast for 2025 makes the stock appear more affordable on a forward basis, it remains a speculative investment. Potential investors should only commit funds they can afford to lose.
For Nvidia, however, the stakes are much lower. As a $3.3 trillion company, Nvidia can afford to take risks with its $13.6 million investment in SoundHound. If the bet pays off, it could further solidify Nvidia’s position as a leader in the AI industry. If not, the loss will be negligible in the grand scheme of its operations.
Originally Written by: Anthony Di Pizio
