both of them SoundHound (NASDAQ: SON) And Nvidia (NASDAQ: NVDA) Two companies are directly benefiting from AI. One is making the chips needed to make the future of AI possible. The other has developed its own AI platform that can power everything from cars to drive-thru windows.
if you want Betting on artificial intelligenceIt makes sense to buy stock in both companies. But there are some serious differences that should guide your investment strategy.
Want to maximize your growth potential?
If you want maximum growth potential, the obvious choice is SoundHound. The math isn’t complicated. SoundHound’s market cap is currently around $1.3 billion. Nvidia’s valuation is closer to $3 trillion. Simply because of its size, SoundHound’s stock has a much better chance of rising another 1,000% than Nvidia’s. For its stock to rise 10 times in value, Nvidia would need to add more value than Microsoft, Meta platforms, appleAnd Amazon Meanwhile, SoundHound would only need to add 0.3% of Nvidia’s current value.
Simply put, SoundHound’s small size gives it more potential than Nvidia. But will SoundHound actually be able to deliver on that potential? There’s one factor that works in its favor. And that factor is the relevance of the SoundHound platform to a wide range of industries.
At its core, the company’s technology enables voice and sound recognition, as well as natural language understanding that enables AI-powered responses. Imagine ordering food through an AI-powered car delivery service, chatting with your car about maintenance issues, or simply choosing a song. You might also want to discuss which TV show to watch next. In fact, SoundHound has contracts with companies working on these very issues, totaling about $700 million in cumulative value — up from about $330 million just a year ago.
For all its potential, SoundHound’s stock price isn’t ideal. The stock trades at 19 times sales, but revenue growth has averaged about 60% per year. There’s a good chance that double-digit growth rates will be sustained for another decade or more, a future that would make today’s premium valuation look reasonable in retrospect. Tech startups like this typically show a lot of short-term volatility, but patient investors looking for maximum growth potential should like what they see.
Focus on artificial intelligence
Nvidia has nothing to prove at this point. In a very short period of time, the company has become the largest AI company in the world, with a large percentage of its business dependent on growth in the AI industry.
“In fiscal 2022 (ending January 2022), Nvidia generated 46% of its revenue from gaming GPUs, 39% from data center GPUs, and the rest from professional visualization, automotive, and OEM chips.” It is clear Fellow Fool contributor Liu Sun: Oh, how quickly that divide has changed. In the first fiscal quarter of 2025, Nvidia generated 87% of its revenue from data center chips and just 13% from everything else, including gaming.
“It generated $22.6 billion in data center revenue in that single quarter compared to its total revenue of about $27 billion for 2011.” everyone “Nvidia is expected to start producing GPUs in 2023,” Sun notes. “This rapid expansion has transformed Nvidia from a more diversified GPU manufacturer to one that is entirely focused on AI chips.”
There are certainly risks to this all-encompassing approach. Over the past five years, Nvidia has gone from about 10 times sales to nearly 40 times sales. The company’s growth rates—revenues grew 262% year-over-year in the most recent quarter (1QFY25)—justify its high multiple. However, there is no denying that Nvidia’s stock price now depends on two things. First, the continued massive increase in AI spending. Second, its ability to maintain its dominant market leadership.
Over the decades, chip wars have produced many repeat winners and losers. Just look at the long-term price charts of AMD, Intel CorporationToday’s winners and losers don’t stay the same forever, even if it takes years for the shift to happen. AMD’s MI300 Instinct GPUs are already outperforming Nvidia’s H100 GPUs in many benchmarks, as are Intel’s Gaudi 3 AI accelerators. Nvidia’s next-gen Blackwell chip is now on the way to market, and it may be able to stem the tide of rising competitors.
Make no mistake: Nvidia is still a great investment for those looking to get into artificial intelligence. But if you’re looking for the best value for your money, don’t ignore lesser-known stocks like SoundHound.
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John Mackey, the former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, the former head of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Ryan Vanzo The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: Buy $45 in January 2025 on Intel, Buy $395 in January 2026 on Microsoft, Buy $35 in August 2024 on Intel, and Buy $405 in January 2026 on Microsoft. The Motley Fool has Disclosure Policy.
Best AI Stocks: Nvidia vs. SoundHound Originally posted by The Motley Fool
