Nvidia (NASDAQ:NVDA) reports huge demand for graphics processing units (GPUs). The company supplies these chips to gaming, data centers, automotive, and artificial intelligence (AI) researchers. All of this demand is generating a lot of excess revenue for Nvidia, and the company is looking for ways to put that money to good use. One way Nvidia will leverage these additional funds is to make strategic investments in companies that help popularize its products.
Nvidia’s Q3 13F filing reveals it still owns 1.7 million shares of SoundHound AI (NASDAQ: SOUN)a leader in voice-assisted technology. A new position in applied digital has also been revealed. (NASDAQ:APLD)a fast-growing data center designer and builder. Both companies have a strong symbiotic relationship with Nvidia. Nvidia’s investment in SoundHound was $8 million at the end of the quarter, but its investment in Applied Digital was much larger, valued at $63 million.
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Here’s why it’s worth following Nvidia to take advantage of these two opportunities.
SoundHound AI is a small company with a market capitalization of approximately $2.3 billion at the time of writing. The stock has been on a rollercoaster ride over the past few years, with the stock nearly tripling in the past 12 months.
Demand for the company’s AI-enabled voice technology is expected to remain strong. Third-quarter revenue increased 89% year-over-year. This was driven by additional revenue from the acquisition of Amelia, an enterprise AI software company that is helping SoundHound expand its technology into more markets beyond automotive and restaurants. However, these core markets continue to provide significant momentum for the business.
Earlier this year, SoundHound and Nvidia partnered to provide voice AI assistance through Nvidia’s DRIVE platform. SoundHound also continues to have strong traction in the electric vehicle market, with Stellantis using SoundHound Chat AI across seven of its car brands. Management is looking to expand its technology to financial services, healthcare and retail companies.
The future looks bright, and SoundHound’s next step is to show investors that it can deliver profitable growth. The company reported an adjusted net loss of $15 million in the third quarter, flat with the second quarter. However, management expects the company to be profitable on an adjusted earnings before interest, tax, depreciation and amortization (EBITDA) basis by the end of 2025.
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This stock has the makings of a monster winner. If adoption continues to grow in multiple markets and the company turns a profit in the next year or so, investors could reap huge profits over the next few years.
Nvidia recognizes the exploding demand for GPUs, especially from data centers. Applied Digital is a relatively small company that benefits from this opportunity. At the time of writing, the company’s market cap is just $1.8 billion, but its stock price is up 112% from last year.
Applied Digital is building data centers for AI, cloud services, and cryptocurrency mining. Last quarter’s revenue was up 67% year-over-year, and we’re starting to see significant customer interest in 2025 and 2026.
As a small company, Applied Digital has limited resources. The business reported an adjusted net loss of $4 million last quarter, which is why NVIDIA’s recent investment is critical to Applied Digital’s growth prospects. Investments by Nvidia and other accredited investors will help strengthen the company’s finances and ultimately encourage investment in high-return projects that will drive further growth. The benefit for Nvidia means more data center growth and ultimately more GPU sales.
Applied Digital aims to be the leader in operating multiple high-performance data centers. In a recent earnings report, the company said it was finalizing a lease with a U.S.-based customer for a 369,000-square-foot state-of-the-art facility capable of handling AI workloads.
The cloud service business also has great potential. Last quarter generated nearly half of the company’s revenue. Cloud businesses help businesses access the computing power they need for AI applications, and new opportunities to grow this business continue to exist.
The company reported earnings of $20 million on an adjusted EBITDA basis in the quarter, and its stock currently trades at 21x enterprise value/EBITDA, based on Wall Street’s consensus EBITDA estimate for the current fiscal year. are. That’s a fair valuation for a fast-growing technology company. Assuming Applied Digital’s profitability continues to improve, the stock could deliver excellent returns over the next few years.
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NVIDIA:If you invested $1,000 when it doubled in 2009;That’s $378,269!*
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We currently have “double down” alerts on three great companies, and we may not see an opportunity like this again anytime soon.
See 3 “Double Down” stocks »
*Stock Advisor returns as of November 18, 2024
John Ballard holds positions at Nvidia and SoundHound AI. The Motley Fool has a position in and recommends Nvidia. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.
Nvidia invests $71 million in these small-cap AI stocks Originally published by The Motley Fool
