It’s hard to make a 147% gain in a few months, but that’s what Nvidia is aiming for. (NASDAQ: NVDA) This comes after a multi-million dollar investment this year. The investment is one of many AI companies that Nvidia has decided to back. It is likely that Nvidia knows these companies pretty well, as they have all worked together in the past. Despite the huge gains, Nvidia appears to be holding on to the stock it purchased quite recently. Investors looking for maximum growth should consider investing.
This AI Stock is Expected to Rise by Over 1,000%
Less than a year ago, Nvidia invested $3.7 million in SoundHound AI. (Nasdaq: SOUN) The stock has risen 147% since then, and there’s reason to believe it could rise another 10x over the long term. But before you invest, there are a few things to consider.
SoundHound AI is a company focused on bringing AI to all things sound. From voice assistants to drive-thru ordering, whenever you talk to a speaker, they want SoundHound AI’s technology to be there. In operation for over 10 years, the company has amassed over 200 patents and has an impressive and growing customer list.
For example, in 2022, it signed a seven-year deal with Hyundai to enhance its voice-driven AI capabilities. Drivers will be able to chat with their cars to send messages, ask for directions, turn the air conditioning on and off, as well as check for maintenance issues and discuss how the car is doing. This is great. In the next few years, the giant user manuals that come with new cars may be replaced by simple conversations between you and the car directly.
SoundHound AI has signed customers with several automakers, but it’s also being used in other industries, including restaurants and fast food chains. For example, Applebee’s and White Castle are piloting the technology to speed up ordering times and reduce overhead costs. This will likely be one of the most common ways we all interact with AI technology in the near future.
Despite a large technology portfolio, a growing customer base, and significant end markets, not to mention the backing of Nvidia, SoundHound’s market cap remains just under $2 billion. To see a 1000% increase in value, the company would need to be valued at roughly $20 billion, which isn’t too far-fetched in a volatile AI industry that could be one of the biggest growth opportunities of a generation.
The stock trades at 22 times sales, but earnings have grown more than 150% over the past two years. If the company can replicate that growth rate, the stock could trade at five to six times 2026 earnings. It’ll take patience and execution to get there, but it’s a much more palatable valuation.
SOUN market cap data by YCharts
Should you invest in SoundHound?
Clearly, SoundHound AI’s end market alone would support a $20B valuation; management believes the total voice AI market is at least $140B. SoundHound AI’s unique technology can be leveraged across a variety of industries, and its early advantage will help it capture a larger share of this growing opportunity.
But there’s a reason SoundHound’s market cap is still only $1.7 billion: the company is still unprofitable and needs to continually raise capital to stay solvent, which limits its ability to invest in research and development, which is arguably the most valuable use of capital in the long term.
It spent just about $56 million on research and development last year, a 30% cut from peak spending levels for 2023. Big tech companies like Apple and Alphabet are investing billions in the sector. The long-term competition will be fierce, and it’s unclear whether SoundHound AI has the funds to survive, much less thrive.
If you’re looking for a speculative growth stock with great long-term potential, SoundHound AI might be a good choice. Backed by Nvidia, it’s certainly a plus. But volatility remains high and the potential downside is significant. This is truly a boom-bust investment option for only high-risk investors.
Should I invest $1,000 in Nvidia right now?
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Suzanne Frey, an executive at Alphabet, serves on The Motley Fool’s board of directors. Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet, Apple, and Nvidia. The Motley Fool has a disclosure policy.
