Both companies are experiencing explosive business growth due to the rise of AI.
Huge demand for artificial intelligence (AI) technology has driven many AI-focused stocks higher over the past year. Semiconductor chip maker Nvidia (NVDA 0.78%) is a notable example, with its share price soaring an impressive 222% over the past 12 months.
Nvidia isn’t the only AI darling. Soundhound AI (Thorn 5.16%) According to the company, it is a start-up business focused on a “voice AI platform that exceeds human capabilities.” That technology prompted Nvidia to invest in SoundHound AI.
Both of these businesses offer attractive opportunities to invest in the rapidly expanding AI market. However, assessing which AI investment is better requires evaluating it from different perspectives. After all, they are at different stages of the business lifecycle.
Nvidia has been around for decades, going public in 1999. SoundHound’s initial public offering (IPO) was in 2022. With this in mind, let’s consider what makes each AI attractive and evaluate which one is a good investment.
Nvidia’s AI Strength
The appeal of Nvidia’s AI investments stems from surging demand for its products among cloud computing customers. The cloud provides the infrastructure for AI systems, which can require thousands of cutting-edge logic chips. These are specialized semiconductor chips that provide greater computing power and efficiency, making them ideal for advanced computing such as AI.
Nvidia is one of the pioneers of cutting-edge logic chips, launching its graphics processing unit (GPU) in 1999. The company currently dominates the GPU market, with sales surging in the face of AI demand.
The company’s revenue reached $30 billion in its fiscal second quarter, which ended July 28, an impressive 122% increase over the previous year. That’s just the beginning of an amazing financial picture.
Nvidia’s second-quarter gross margin rose to 75% from 70% in 2023. This indicates that the company’s business is managing costs more effectively than last year, allowing Nvidia to keep more profits. As a result, net income increased 168% year over year to $16.6 billion.
Nvidia’s future is also bright. Third-quarter sales are expected to be $32.5 billion, up 79% from $18.1 billion a year ago.
Additionally, demand for the new Blackwell architecture, NVIDIA’s next-generation platform for advanced computing, exceeds supply, according to management. The semiconductor giant is ramping up Blackwell production in the fourth quarter and estimates Blackwell sales will be in the billions of dollars.
Another factor in Nvidia’s favor is that as AI permeates today’s technology-dependent society, IT infrastructure is likely to move toward widespread adoption of cutting-edge logic chips. Trends like this will give Nvidia a huge market for its products. The cloud computing industry is estimated to reach $676 billion this year.
SoundHound AI Case Study
As an emerging AI company, SoundHound’s revenue growth is a particularly important metric. The rapid increase in revenue demonstrates the company’s ability to effectively acquire customers and expand its initial business.
SoundHound is successful in this area. By the first half of 2024, the company had revenue of $25.1 million, an increase of 62% from 2023. And revenue growth is about to accelerate.
The company has made several acquisitions this year to expand its presence in the restaurant, finance, insurance and healthcare industries. As a result, we expect 2024 sales to exceed $80 million, up from $45.9 million in 2023.
SoundHound’s increased expenses will require significant revenue growth. The company ended the second quarter with a net loss of $37.3 million, widening from a net loss of $23.3 million a year earlier.
However, this increase is due in part to acquisition costs. Additionally, many young technology companies prioritize business growth over profitability. So SoundHound’s net loss is not a red flag at this point.
The company expects the acquisition integration to take several quarters. Management said this will ultimately lead to cost savings as SoundHound approaches breakeven by the end of 2025 and 2026.
Additionally, Nvidia is not just an investor in SoundHound, but also a business partner. SoundHound integrates its technology with Nvidia’s automotive platform to deliver in-car AI voice assistant capabilities even without the internet.
This further enhances SoundHound’s success in the automotive sector. Earlier this year, Stellantis was the first car company to begin full-scale production of its SoundHound generative AI voice assistant.
Choosing between Nvidia and SoundHound AI
SoundHound has a lot of growth potential. The total market size (TAM) of the company’s AI products is estimated to be at least $140 billion. As long as TAM can continue to grow its piece of this pie, it makes the company even more attractive as an investment.
However, the company is still in the process of building its business, so investing in SoundHound is for those with a high risk tolerance. The company has yet to prove that it can become a lasting leader in the voice AI market.
Nvidia, on the other hand, has been successful in expanding its business over the years. Currently, it is the world’s leading semiconductor company in terms of market capitalization.
AI requires cutting-edge logic chips, so the combination of strong financials and outstanding future growth prospects make Nvidia a better long-term investment than SoundHound in the growing AI market.
