Shares of SoundHound AI (SOUN +4.93%) charged sharply higher this week, soaring as much as 93.4%, according to data supplied by S&P Global Market Intelligence. As of 1:34 p.m. ET on Thursday, the stock was still up 88.3%.
The catalyst that vaulted the artificial intelligence (AI) specialist higher was the revelation that one of the biggest names in AI had caught its gaze.
NASDAQ: SOUN
Key Data Points
AI king-(chip)maker
Investors discovered a regulatory filing by Nvidia (NVDA +1.67%) that revealed a stake in SoundHound AI of 1.73 million shares, worth roughly $11 million when the market closed on Wednesday. That amounts to pocket change for the chipmaker and represents less than 1% of SoundHound AI's outstanding shares, so it wasn't a significant investment.
Nevertheless, the news gave investors a boost of confidence, with many piling into SoundHound AI, believing it could be the next big thing in AI.
A mixed reaction on Wall Street
The news about Nvidia's investment got something of a mixed reaction from Wall Street.
Northland analyst Michael Latimore noted the investment was a "logical" move, given SoundHound's "comprehensive and deep" portfolio of voice and audio recognition software for businesses. The rise of generative AI will boost demand for its products, and Northland said SoundHound is "one of our top stock picks for 2024." Despite his enthusiasm, Latimore subsequently downgraded the stock to market perform (hold) after the stock price run, citing its current valuation.
Furthermore, analysts at Cantor Fitzgerald noted the stake wasn't anything new, as Nvidia first invested in SoundHound AI back in 2017 when the company was still a start-up. They called the recent rally "aggressive," noting that Nvidia had not added to its position in more than seven years. Cantor maintained its overweight (buy) rating with a $3.60 price target -- roughly half what the stock trades for as of this writing.
It's worth noting that SoundHound now sells for 19 times forward sales, despite a lack of profits and revenue that grew just 19% year over year in the third quarter.
Investors should approach SoundHound AI with caution. The company reports its fourth-quarter results after market close on Thursday.
