Nvidia(NASDAQ: NVDA) reports huge demand for its graphics processing units (GPUs). It supplies these chips for researchers in the fields of gaming, data centers, automotive and artificial intelligence (AI). All that demand generates a lot of extra revenue for Nvidia and the company is looking for ways to put that money to good use. One way Nvidia is taking advantage of these additional resources is by making strategic investments in companies that help spread the adoption of its products.
Nvidia’s third-quarter 13F filing showed the company still owned 1.7 million shares SoundHound AI (NASDAQ: SOUND)a leader in voice assistant technology. It also revealed a new position in Applied digital(NASDAQ:APLD)a fast-growing designer and builder of data centers. Both companies have a solid symbiotic relationship with Nvidia. Nvidia’s investment in SoundHound was worth $8 million at the end of the quarter, but it had a significantly larger investment in Applied Digital worth $63 million.
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Here’s why it might be worth following Nvidia on these two options.
SoundHound AI is a small company with a market cap of around $2.3 billion at the time of writing. The stock has had a rollercoaster ride in recent years, but the share price has almost tripled in the past twelve months.
Demand for the company’s AI-powered voice technology remains high. Revenue grew 89% year-over-year in the third quarter, thanks in part to additional revenue from the acquisition of Amelia, an enterprise AI software company that is helping SoundHound expand its technology into more markets beyond automotive and restaurants. However, these core markets continue to provide tremendous momentum for the company.
Earlier this year, SoundHound and Nvidia teamed up to provide voice AI assistance through Nvidia’s DRIVE platform. SoundHound also continues to see strong traction in the electric car market Stellantis using SoundHound Chat AI in seven of its automotive brands. Management wants to expand its technology to companies in financial services, healthcare and retail.
The future looks bright, so the next step for SoundHound is to show investors it can deliver profitable grow. The company reported an adjusted net loss of $15 million in the third quarter, which was flat from the second quarter. However, management forecasts a profit by the end of 2025 based on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
The stock has the characteristics of a monster winner. Assuming it gains traction in multiple markets and makes gains over the next year, investors could make huge returns in the coming years.
Nvidia is seeing explosive demand for its GPUs, especially from data centers. Applied Digital is a relatively small company taking advantage of this opportunity. It has a market cap of just $1.8 billion at the time of writing, and the stock is up 112% in the past year.
Applied Digital builds data centers for AI, cloud services and cryptocurrency mining. Revenue grew 67% year-over-year last quarter and interest from major customers for 2025 and 2026 is starting to increase significantly.
As a smaller company, Applied Digital has limited resources. The company reported an adjusted net loss of $4 million last quarter, but that’s where Nvidia’s recent investment is crucial to Applied Digital’s growth prospects. The investment by Nvidia and other accredited investors has helped strengthen the company’s finances, which will ultimately encourage investments in high-return projects to drive more growth. The benefit for Nvidia is that it helps grow more data centers, which ultimately means more revenue for its GPUs.
Applied Digital strives to be a leader in operating multiple high-performance data centers. In its recent earnings report, the company noted that it was finalizing a lease with a US-based customer for a 30,000-square-foot state-of-the-art facility that can handle AI workloads.
The cloud services sector also shows great potential. It generated almost half of the company’s revenue last quarter. The cloud sector helps companies access the computing power they need for AI applications, and continues to see new opportunities to grow this business.
The company reported earnings of $20 million on an adjusted EBITDA basis in the quarter, and the stock currently trades at an enterprise value/EBITDA ratio of 21, based on Wall Street’s consensus EBITDA estimate for the current fiscal year. It’s a reasonable valuation for a fast-growing technology company. Assuming Applied Digital continues to improve profitability, the stock could deliver excellent returns in the coming years.
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John Ballard holds positions at Nvidia and SoundHound AI. The Motley Fool holds positions in and recommends Nvidia. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.
Nvidia has invested $71 million in these smaller AI stocks, originally published by The Motley Fool
