Nvidia (NASDAQ: NVDA) has created an incredible amount of value over the past 18 months. It was a $360 billion company at the start of 2023, but it’s now on the sidelines Apple And Microsoft in the $3 trillion club.
The 826% increase in Nvidia’s stock price during that period was driven by huge demand for data center graphics chips (GPUs), which are designed to develop artificial intelligence (AI) models. In the recent first quarter of fiscal 2025 (ending April 28), they drove Nvidia’s data center revenue up 427% year-over-year to a record $22.6 billion.
Late last year, Nvidia decided to spread some of its newly acquired wealth by investing in five other AI companies. These moves could indicate where CEO Jensen Huang thinks the next wave of value will be created in the AI space.
The five stocks Nvidia bought at the end of 2023
According to a 13F filing with the Securities and Exchange Commission on February 14, Nvidia invested in the following five stocks in the fourth quarter of 2023:
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Arm positions (NASDAQ:ARM)that designs processors for chip giants such as Nvidia.
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SoundHound AI (NASDAQ: SOUND)that develops virtual assistants based on its conversational AI technology.
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Nano-X imagingthat improves medical imaging using AI.
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Recursion pharmaceutical productsthat accelerates drug discovery through AI.
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TuSimple Holdings, which develops autonomous driving for the truck and logistics sector. However, Nvidia recently sold this stake according to its latest 13F filing dated May 15.
Nvidia’s position in Arm was worth $147 million at the end of 2023, but has since grown to $268 million thanks to a 98% gain in the stock so far in 2024. Arm is Nvidia’s largest holding.
SoundHound received a smaller investment, with a position from Nvidia worth $3.7 million at the end of 2023. But SoundHound shares are up 123% so far this year, bringing the value of Nvidia’s stake to $8 million catapulted.
This is why Arm and SoundHound stand out among the four stocks Nvidia currently owns.
1. Gun ownership
Arm built the architecture that powers companies like Nvidia, Advanced micro devices, and even uses iPhone giant Apple to design their chips. Four years ago, Nvidia tried to acquire Arm for $40 billion, but the deal was rejected because regulators found it anti-competitive. Considering Arm now has a market cap of $143 billion, Nvidia has missed out on a real bargain.
Arm is the world’s most popular central processing unit (CPU) architecture. As many as 99% of smartphones use Arm-designed chips, and the company’s CEO recently told Reuters it could capture 50% of the Windows PC market within five years. Microsoft is driving demand for Arm’s technical expertise as it rapidly integrates AI into the Windows operating system (and its own PCs and devices), which calls for next-generation chip hardware.
Nvidia recently launched a new GPU architecture called Blackwell, which forms the basis of its advanced GB200 superchip. The GB200 combines two Nvidia GPUs with two Arm-designed CPUs, which can derive AI models five times faster than the H100 GPU, which is currently the dominant AI data center chip. That’s why Arm is not only a dominant force in consumer electronics, but also in the servers responsible for producing the world’s most advanced AI models.
Arm generated $3.2 billion in revenue in fiscal 2024 (ending March 31), up 21% from fiscal 2023. While that’s a solid growth rate and the company is undoubtedly critical to the future of AI, investors should be aware of the stock is quite expensive.
Based on Arm’s revenue of $3.2 billion and market cap of $143 billion, the stock trades at a price-to-sales ratio (P/S) of about 44. For comparison, Nvidia’s P/S ratio is about 37, and it is expected to grow. its turnover this financial year by 98%. In other words, it’s hard to justify a higher valuation for Arm compared to Nvidia when Arm is growing its revenue at a much slower pace.
Consider that Nvidia’s investment in Arm stock at the end of 2023 was about half the price it trades at today, which represented a more reasonable valuation. It doesn’t look nearly as attractive now, so investors should probably wait for a pullback before buying.
2. SoundHound AI
SoundHound AI uses speech recognition technology to create a portfolio of AI-powered virtual assistants. They can recognize voice prompts and respond in kind, meaning they can have entire conversations without the user having to type a single word. The company has developed its own AI models, but also integrates those from leading third parties such as OpenAI.
The restaurant industry uses SoundHound to autonomously accept customer orders over the phone, at the drive-thru and in-store. SoundHound has also begun implementing its new Employee Assist tool, which employees can call on at any time to get instant access to everything from store policies to instructions for making food or drinks. Krispy Kreme, Chipotle Mexican GrillAnd Papa Johns are just a few of SoundHound’s customers.
SoundHound’s technology is already live in 10,000 locations, with 100,000 more in the pipeline. However, the company believes its addressable market consists of more than 1 million restaurants and 30 million other businesses in North America, which translates into a $100 billion opportunity.
The company also created an AI voice assistant for cars. Manufacturers love Mercedes Benz And Stellantis (Alfa Romeo, Jeep, Dodge) are already using it, allowing drivers to ask questions on a range of topics and even access information about their vehicle’s features.
SoundHound now also partners with Nvidia’s Drive platform to deliver AI on the edge, meaning drivers don’t need network connectivity to access their AI assistant. It increases the number of usage scenarios and also improves privacy by keeping conversations in a closed loop.
The stock trades at a slightly more reasonable valuation than Arm. Based on trailing-twelve-month revenue of $50.8 million and market cap of $1.5 billion, the price-to-earnings ratio is just over 30. However, the company is losing quite a bit of money, including $33 million in its recent first quarter. from 2024 alone. With only $226 million in cash on hand, it may have to raise more money through a stock offering in the future, which will dilute existing investors. That’s an important risk to consider.
On the plus side, the company has a large backlog worth $682 million, which should convert into revenue over time. However, investors looking to follow Nvidia in this stock should keep their position size relatively small to account for the risks.
Should You Invest $1,000 in Arm Holdings Now?
Consider the following before purchasing shares in Arm Holdings:
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Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Apple, Chipotle Mexican Grill, Microsoft, and Nvidia. The Motley Fool recommends Stellantis and recommends the following options: long January 2026 $395 calls at Microsoft and short January 2026 $405 calls at Microsoft. The Motley Fool has a disclosure policy.
Nvidia recently bought five artificial intelligence (AI) stocks. These 2 stand above the rest. was originally published by The Motley Fool
