Nvidia has prompted interest among investors with a notable growth stock this year.
Nvidia, a prominent player in the tech industry, achieved a significant return of 147% on a multimillion-dollar investment within just a few months. This return resulted from investments in several AI companies that Nvidia has previously collaborated with, suggesting familiarity and confidence in these ventures. Despite the substantial profits, Nvidia appears to be retaining its relatively new stock acquisitions. Investors seeking substantial growth are advised to consider this opportunity.
Less than a year ago, Nvidia invested $3.7 million in SoundHound AI stock. Since then, shares have appreciated by 147%, with potential for further growth, possibly tenfold over the long term. SoundHound AI focuses on integrating AI into various sound-related technologies, including voice assistants and drive-thru ordering systems. Over its extensive history, the company has secured more than 200 patents and attracted a growing customer base.
In 2022, SoundHound AI secured a seven-year contract with Hyundai to enhance the car manufacturer’s voice-driven AI capabilities. This technology allows drivers to interact with their vehicles for various functions, including messaging, obtaining directions, controlling air conditioning, and checking maintenance status. The integration aims to replace traditional user manuals with interactive conversations between users and their vehicles.
SoundHound AI has also expanded into other sectors, such as the restaurant industry, where companies like Applebee’s and White Castle are testing the technology to improve order processing times and reduce costs. Given Nvidia’s support, SoundHound’s technological portfolio, and a growing customer base, the company’s current market capitalization stands at under $2 billion. To achieve a tenfold increase, SoundHound would need to reach a valuation of approximately $20 billion—a feasible goal within the dynamic AI sector, viewed as a significant growth opportunity for the future.
Shares of SoundHound AI currently trade at 22 times sales. Over the past two years, the company’s revenue has increased by more than 150%. If these growth trends continue, shares could be valued at five to six times the projected revenue for 2026, which presents a more appealing valuation, albeit requiring patience and precise execution.
SoundHound AI’s target market alone could support a $20 billion valuation. The voice AI market, as per the company’s management, has a total addressable market size of at least $140 billion. SoundHound AI’s pioneering technology spans various industries, bolstering its potential to capture a significant market share as the sector expands.
However, despite its promising technology and Nvidia’s backing, SoundHound AI trades at a market cap of $1.7 billion due to its current unprofitability. The company continuously needs external financing to maintain operations, limiting its ability to invest significantly in research and development—vital for its long-term success. In 2022, the company’s research and development expenditure was around $56 million, a 30% reduction from its peak spending in 2023. This is in stark contrast to the billions invested by major tech companies like Apple and Alphabet, highlighting the intense competition SoundHound AI faces.
For speculative growth stocks with considerable long-term potential, SoundHound AI presents a viable option, buoyed by Nvidia’s endorsement. However, investors should be mindful of the high volatility and substantial downside risks associated with such investments, making it suitable only for those with high-risk tolerance.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Ryan Vanzo has no positions in the mentioned stocks. The Motley Fool has holdings in and recommends Alphabet, Apple, and Nvidia. The Motley Fool adheres to a disclosure policy.
