SoundHound AI (NASDAQ: SOUN) experienced a significant decline in its stock value on Friday, with shares dropping 26.7% by 11:45 a.m. ET, following a decrease of as much as 31.8% earlier in the session. This downturn appeared to be influenced by a Securities and Exchange Commission filing disclosed that morning, revealing Nvidia’s decision to sell its stake in the company during the fourth quarter of 2024. Concerns have emerged among some investors regarding the prospects for the conversational AI company, given this development from Nvidia, a leading figure in the AI hardware industry.
Despite Nvidia’s decision not being a favorable indication, it is important to contextualize the move. Nvidia had owned approximately 1.71 million shares of SoundHound AI, which, as of the market close on December 31, would have been valued at around $34 million. Compared to Nvidia’s current market capitalization of about $3.36 trillion, this investment was relatively small and did not significantly impact Nvidia’s financial standing. Thus, the divestment is unlikely to have a material effect on SoundHound AI’s operations, although it may have triggered an overreaction in the market.
However, Nvidia’s sale does underscore potential risks for SoundHound investors. Notably, even after the significant sell-off, SoundHound AI’s valuation remains roughly 26.5 times its projected sales for this year. Although the company has reported impressive sales growth and appears poised for further expansion, the volatility seen may be indicative of the instability often associated with companies valued heavily on expected future performance.
Nvidia’s decision might also signify a strategic shift to concentrate more resources on its own expansion within the conversational AI sector, indicating that SoundHound AI may no longer be viewed as a leading technology contender. Nvidia’s focus on agentic AI software during its presentation at this year’s CES show could have anticipated this scenario.
SoundHound AI holds a pioneering position in a growing sector that presents both opportunities and challenges. The company has demonstrated success in increasing the adoption of its software, yet there remains the risk of larger competitors entering the market, leveraging their financial and structural advantages to gain dominance.
For investors willing to embrace higher risk with an interest in SoundHound AI’s long-term potential, the recent stock price drop might present a buying opportunity within a strategic dollar-cost-averaging framework, as the company’s fundamental outlook has not markedly changed. Conversely, investors seeking exposure to AI trends with less risk may want to explore alternative investments in the space.
