Artificial intelligence (AI) stocks have led the market higher in 2024. Nvidia shares, for example, have risen in value by 140% this year. The company currently has a massive $2.9 trillion market cap.
Want to make big money with AI stocks? You'll have to look at smaller, lesser-known companies. There's one AI stock right now valued at just $1.7 billion that you should take a closer look at. In fact, Nvidia has bet nearly $4 million of its own cash on this growth stock.
Bet big on AI with this small-cap stock
Earlier this year, Nvidia revealed that it had made multimillion-dollar investments in a small handful of companies. Most of these companies had worked with Nvidia before, using their chips to power their AI products and services. One of those investments was a $3.7 million bet on SoundHound AI (SOUN 0.37%), which traded at a $500 million valuation just prior to Nvidia's investment.
NASDAQ: SOUN
Key Data Points
SoundHound's work with Nvidia presents a compelling example of its technology in use. In March, a joint press release revealed that SoundHound would soon launch "an innovative in-vehicle voice assistant that uses a large language model (LLM) completely on the edge while running on the Nvidia Drive platform." In a nutshell, SoundHound's voice and natural language processing technology would help Nvidia's technology interact with drivers seamlessly and effortlessly through voice conversations.
The combination of SoundHound and Nvidia's tech platforms will allow drivers to chat about their vehicle's maintenance history, ask questions about its needs and performance, and also discuss potential route plans and local landmarks. It's an impressive feat powered simply through language and natural conversation. SoundHound's voice recognition platform has also been used in a variety of other industries. Applebee's and White Castle have piloted its technology for drive-thrus and customer ordering, while Pandora and Block have tested SoundHound's ability to provide customers with a better user experience.
SOUN Net Income (Quarterly) data by YCharts
Interacting with AI through voice is a giant opportunity with countless end markets. SoundHound has an early lead with more than 270 patents and a growing customer list that not only generates reputational advantages but also provides an increasing supply of real-world data to further train and improve its AI models. Nvidia's investment is certainly a vote of confidence, but there are some risks to understand before jumping in.
What could go wrong?
SoundHound's comparatively small $1.7 billion valuation leaves plenty of room for long-term upside. But there are several reasons why shares are still priced so cheaply. The first is that the company is still losing money. It hasn't posted a quarterly profit in years, and must constantly raise new financing. Last quarter posted a record loss of $37 million.
Second, it's not clear that the company has enough money to compete with major tech giants when it comes to research and development. SoundHound's R&D budget is only around $56 million per year, and investment has actually fallen in recent quarters. Finally, sales growth is high at around 50% per year, but the company's valuation is extremely high. Shares currently trade at more than 24 times sales.
There are plenty of risks here, but also plenty of potential upside. The main point of caution is that SoundHound is for long-term investors only. Stocks like this can be very volatile over the short term. If you want to jump in, be sure to maintain a long-term view, betting on the secular rise of AI technologies and SoundHound's place within that rise.
