Arguably no trend has been hotter on Wall Street over the last year and change than artificial intelligence (AI).
Put simply, AI allows software and systems to oversee tasks that would normally be assigned to humans. The game-changing growth potential AI brings to the table has everything to do with software and systems being able to learn without human intervention. This would make AI-driven systems more proficient at their assigned tasks over time, as well as allow software and systems to evolve and learn new skill sets.
It's this broad-reaching potential for artificial intelligence that led analysts at PwC to estimate the technology will add $15.7 trillion to worldwide gross domestic product come 2030.
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No publicly traded company has benefited more directly from the AI revolution than semiconductor behemoth Nvidia (NVDA +1.67%). After delivering $27 billion in net sales and almost $4.4 billion in net income in fiscal 2023 (Nvidia's fiscal year ends in late January), the company is pacing $120 billion in revenue and north of $64 billion in net income for the current fiscal year (ended January 2025).
In short order, Nvidia's H100 graphics processing unit (GPU) became the clear-cut choice by businesses wanting to train large language models and run generative AI solutions. Overwhelming demand for the company's hardware, coupled with its CUDA software keeping developers contained within its ecosystem, have helped to drive up the selling price of its GPUs.
Long story short, Nvidia is absolutely swimming in operating cash flow. While a sizable chunk of its cash is being put to good use -- i.e., ongoing research and development to sustain its AI compute advantage -- Nvidia has also been investing some of its cash into promising companies in the AI arena.
Although Nvidia owns stakes in five publicly traded companies, based on its Form 13F from the first quarter and a recently filed Form 4 with the Securities and Exchange Commission (SEC), four of these holdings account for 99.9% of its $380 million AI-inspired investment portfolio.
NASDAQ: ARM
Key Data Points
Arm Holdings: $292,156,816 in market value, as of the closing bell on July 26
The lion's share of Nvidia's roughly $380 million investment portfolio belongs to intellectual-property (IP)-driven semiconductor company Arm Holdings (ARM +2.71%). Nvidia closed out the March-ended quarter with 1,960,784 shares of Arm, equating to more than $292 million in market value, as of the closing bell on July 26. Shares of Arm have nearly tripled since its initial public offering (IPO) at $51 last September.
Whereas most semiconductor companies are clamoring to be the king of hardware, Arm Holdings has found a unique niche that allows it to effectively sit back and collect royalties and licensing fees. Arm develops and designs central processing units, GPUs, and systems IP. Companies like Nvidia use Arm's designs for their chips, which allows Arm to collect royalties and/or licensing fees. It's a high-margin operating model without the overhead that can, at times, cripple traditional chip companies.
When Arm reported its fiscal fourth quarter results in May for the period ending on March 31, 2024, it signaled that the rise of AI, and the need for more energy-efficient designs, should be key drivers for its royalty revenue stream moving forward.
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Recursion Pharmaceuticals: $64,348,131
The second-largest holding in Nvidia's AI-fueled $380 million investment portfolio is clinical-stage biotechnology company Recursion Pharmaceuticals (RXRX +5.00%). The 7,706,363 shares of Recursion held by Nvidia work out to a market value of more than $64.3 million, as of July 26.
Recursion is attempting to differentiate itself from other drug developers by heavily leaning on machine-learning technology to assist with the innovative process. The company's supercomputer (BioHive-2), which is powered by Nvidia's hardware, has collected copious amounts of data in an effort to understand the interaction between biology and chemistry. The goal here is to make logical assumptions about which pathways to disease treatment are likely to be successful.
While it's a neat concept on paper, it's not yet clear if this Ai-driven approach will be successful. Recursion Pharmaceuticals currently has five experimental therapies in clinical trials, which range from rare-disease therapeutics to cancer drugs. With preliminary or topline data readouts expected for four out of these five trials by the midpoint of 2025, we should soon have a good idea of whether or not relying on AI in the drug-development process is a potential game changer.
NASDAQ: SERV
Key Data Points
Serve Robotics: $13,882,705
Nvidia's third-largest position, which was revealed via a recent Form 4 filing with the SEC, is autonomous sidewalk delivery company Serve Robotics (SERV +1.38%). The AI kingpin converted a debt note it held into 1,050,129 shares of Serve Robotics, which was worth close to $13.9 million, as of the end of last week.
The intrigue for Nvidia may have everything to do with the massive -- but still largely unproven -- addressable market associated with robotic and drone delivery. Cathie Wood's Ark has estimated that autonomous delivery can be worth $450 billion by the turn of the decade. Serve Robotics' autonomous food delivery robots aim to reduce the reliance on vehicles (making life safer for pedestrians), as well as lower costs for businesses and consumers.
Although Serve has raised plenty of capital recently, it's sort of in the same boat as Recursion Pharmaceuticals in the sense that it's too early to tell if the idea if viable and scalable. First-quarter sales, while up triple-digits on a sequential quarterly basis, totaled just $950,000 -- much of which was based on software revenue recognition. Sizable losses are expected as Serve Robotics ramps up its operations and tests its autonomous delivery robots in new markets.
NASDAQ: SOUN
Key Data Points
SoundHound AI: $8,862,121
The fourth artificial-intelligence-inspired stock that, along with Arm Holdings, Recursion Pharmaceuticals, and Serve Robotics, accounts for 99.9% of Nvidia's approximately $380 million investment portfolio is voice-recognition software up-and-comer SoundHound AI (SOUN +5.07%). The 1,730,883 shares of SoundHound held by Nvidia equate to almost $8.9 million in market value.
SoundHound aims to capitalize on the rapid growth in voice-based AI by broadening its relationship with restaurants, automakers, and television manufacturers. During the first quarter alone, SoundHound closed its acquisition of SYNQ3, making it the leading voice AI provider for large-scale restaurant chains. SoundHound also forged agreements with Church's Chicken and Dine Brands Global's Applebee's.
Growing demand for voice-recognition software sent SoundHound AI's revenue soaring by 73% in the March-ended quarter to $11.6 million.
While it's had no trouble landing new partners and growing sales, the company's losses are also widening. SoundHound's generally accepted accounting principles (GAAP) net loss grew by 20% to $33 million in just the first three months of 2024. Having a healthy cash position will be imperative to SoundHound's success as it attempts to expand its reach in a variety of consumer-facing industries.
