Developments in artificial intelligence (AI) are among the most exciting trends in the capital markets right now. One company I've been following for a while is voice recognition software developer SoundHound AI (SOUN 5.77%).

Big tech has already shown interest in this space. For example, Apple boasts Siri and Shazam as part of its ecosystem, while Microsoft acquired Nuance for a whopping $20 billion just two years ago. Moreover, both Amazon and Alphabet have made speech software services an integral part of their smart home products.

On Feb. 15, SoundHound AI stock rocketed 67% higher following news that "Magnificent Seven" member Nvidia had disclosed a stake in the company. While the stock may be taking off, are ties to Nvidia enough to make SoundHound AI a buy?

Let's dig in to see what's really going on before buying into the hype.

Why the stock is moving higher

SoundHound AI went public in 2022 with the help of a special purpose acquisition company (SPAC). Like many SPAC stocks, SoundHound AI garnered a lot of interest from investors leading up to its market debut.

Unfortunately, following a series of lackluster earnings reports, the hype began to wane, sending the stock from a peak of nearly $15 per share to less than $1 before 2022 was over. Following its 67% gain on Thursday, SoundHound stock trades at $3.76.

Last week's surge is tied to a 13F filing that Nvidia made with the SEC. In the filing, Nvidia revealed investment stakes in five companies -- SoundHound AI being one of them.

If this wasn't enough to get investors roaring, one of Wall Street's most outspoken technology analysts appeared to applaud SoundHound AI's ability to attract such a notable investor in Nvidia. Dan Ives of Wedbush Securities posted on X (formerly Twitter) to share some thoughts on how SoundHound AI could benefit from its partnership with Nvidia.

But savvy investors always do their due diligence before making any investment, especially one in a beaten-down company such as SoundHound AI.

Person speaking into voice assistant on phone.

Image source: Getty Images.

When in doubt, zoom out

One of my predictions for 2024 was that merger and acquisition activity would be on the rise. With so many businesses looking to capitalize on AI-fueled momentum, big tech is likely to make some aggressive moves this year and begin acquiring smaller platforms that complement their existing products.

The news of Nvidia investing in SoundHound AI initially made me believe my prediction was already coming true. However, upon further investigation, I learned something pretty interesting.

When SoundHound AI was still a private company, it raised hundreds of millions of dollars, primarily from venture capital (VC) firms. However, the company also attracted funding from a number of high-profile technology firms, including Tencent and Samsung.

And back in 2017, Nvidia participated in a $75 million investment round too.

Should you invest in SoundHound AI?

Given Nvidia has been tied to SoundHound AI for several years, I'd caution investors against reading too much into Ives' post on social media. The company already has a number of impressive partners, including Qualcomm, Oracle, Block, and Toast. And the relationship with Nvidia isn't really anything new, technically. It's also not clear how SoundHound AI and Nvidia plan to work together -- if at all.

The role that artificial intelligence can play in voice recognition software shouldn't be underappreciated. It's clearly an area that many in big tech are exploring, and I suspect it's still early days for speech-based products. While the potential for SoundHound AI could be massive, investors should be wary of pouring into the stock based on this latest news.

SoundHold AI has built up a lot of momentum. While this presents a quick opportunity to make a profit, you could very well be left a bag holder if you're not careful. A more prudent strategy would be to see how things play out for SoundHound AI over the next few quarters.

It will also be interesting to see if the company's relationship with Nvidia materializes into something measurable. For now, though, it may be best to sit on the sidelines.