Nvidia is sharing some of its success by investing in other AI stocks.

Nvidia (NVDA -0.71%) has built a tremendous amount of wealth in the previous 18 months. It was a $360 billion firm at the start of 2023, but it has now joined Apple and Microsoft in the $3 trillion club.

The 826% increase in Nvidia’s stock price over that time period was fueled by high demand for its data center graphics chips (GPUs), which are used to construct artificial intelligence models. In the first quarter of fiscal 2025 (ending April 28), they increased Nvidia’s data center revenue by 427% year on year, reaching a record $22.6 billion.

At the end of last year, Nvidia chose to distribute its newly found wealth by investing in five additional AI firms. The actions might point to where CEO Jensen Huang believes the next wave of wealth will emerge in the AI field.

Nvidia acquired five stocks at the end of 2023.

According to a 13F filing with the Securities and Exchange Commission on February 14, Nvidia invested in the five stocks listed below in the fourth quarter of 2023:

Arm Holdings (ARM 2.87%), which develops CPUs for semiconductor titans such as Nvidia.

SoundHound AI (SOUN -2.52%), which creates virtual assistants using its conversational AI technology.

Nano-X Imaging uses artificial intelligence to improve medical imaging.

Recursion Pharmaceuticals uses artificial intelligence to accelerate medication discovery.

TuSimple Holdings is a company that develops autonomous driving technology for the transportation and logistics industries. However, Nvidia just sold this investment, according to its most recent 13F filing, which was published on May 15.

Nvidia’s stake in Arm was worth $147 million at the end of 2023, but it has now increased to $268 million due to the stock’s 98% rise thus far in 2024. Arm is Nvidia’s largest holding.

SoundHound got a lower investment, with Nvidia’s holding valued at $3.7 million at the end of 2023. However, SoundHound stock has risen 123% this year, boosting Nvidia’s position to $8 million.

Here’s why Arm and SoundHound stand out among the four stocks Nvidia presently owns.

1. Arms Holdings

Arm created the architecture that businesses such as Nvidia, Advanced Micro Devices, and even iPhone behemoth Apple utilize to develop semiconductors. Four years ago, Nvidia attempted to purchase Arm altogether for $40 billion, but the transaction was rejected because authorities deemed it anti-competitive. Given Arm’s current market capitalization of $143 billion, Nvidia lost out on a fantastic deal.

Arm is the most widely used architecture for central processing units (CPUs). Arm-designed processors power 99% of smartphones, and the company’s CEO recently told Reuters that it might grab half of the Windows PC market within five years. Microsoft is driving demand for Arm’s technological knowledge by rapidly incorporating AI into the Windows operating system (and its own PCs and gadgets), necessitating next-generation semiconductor technology.

Nvidia has introduced Blackwell, a new GPU architecture that serves as the foundation for their powerful GB200 superchip. The GB200 combines two Nvidia GPUs and two Arm-designed CPUs to infer AI models five times quicker than the H100 GPU, which is presently the dominating AI data center hardware. As a result, Arm is not just a dominant force in consumer electronics, but also in servers that power the world’s most powerful AI models.

Arm produced $3.2 billion in revenue in fiscal 2024 (ending March 31), a 21% increase over fiscal 2023. While this is a strong growth rate, and the firm is unquestionably important to the future of AI, investors should be mindful that its stock is relatively pricey.

Arm’s stock trades at a price-to-sales (P/S) ratio of around 44, based on its $3.2 billion in revenue and $143 billion in market capitalization. In instance, Nvidia’s P/S ratio is at 37, and its revenue is predicted to increase by 98% this fiscal year. In other words, it’s difficult to justify paying a higher price for Arm vs Nvidia when Arm’s revenue is rising at a considerably slower rate.

Remember that Nvidia’s late-2023 purchase in Arm shares was at nearly half its current price, indicating a more realistic valuation. It doesn’t appear as appealing anymore, therefore investors should probably wait for a dip before investing.

2) SoundHound AI

SoundHound AI employs speech recognition technology to develop a portfolio of AI-powered virtual assistants. They can understand voice cues and reply appropriately, allowing them to carry full conversations without the user typing a single word. The firm has created its own AI models, but it also uses those from top third-party providers such as OpenAI.

The restaurant sector is utilizing SoundHound to automatically take client orders over the phone, at the drive-thru, and in-store. SoundHound has also begun to roll out the new Employee Assist tool, which employees may use at any time to rapidly obtain everything from shop laws to directions for producing a certain meal or drink. SoundHound’s clientele include Krispy Kreme, Chipotle Mexican Grill, and Papa John’s.

SoundHound’s technology is now in 10,000 sites, with 100,000 more on the way. However, the company says its addressable market in North America includes more than 1 million restaurants and 30 million other enterprises, representing a $100 billion potential.

The business has developed an AI voice assistant for autos. Manufacturers like as Mercedes-Benz and Stellantis (Alfa Romeo, Jeep, Dodge) already employ it, allowing drivers to ask inquiries about a variety of topics and even obtain information on their vehicle’s characteristics.

SoundHound has also teamed with Nvidia’s Drive platform to provide AI on the edge, which means drivers will not require network connectivity to access their AI helper. It increases the amount of use cases while simultaneously improving privacy by keeping interactions in a closed loop.

The stock has a little more fair value than Arm. Based on its trailing-12-month revenue of $50.8 million and market capitalization of $1.5 billion, its P/S ratio is somewhat more than 30. However, the corporation is losing a significant amount of money, including $33 million in the first quarter of 2024 alone. With only $226 million in cash on hand, it may have to obtain further funds through a stock issue in the future, diluting existing investors. This is an essential risk to consider.

On the good side, the business has a substantial order backlog of $682 million, which should translate into income over time. However, investors who wish to follow Nvidia in this company should keep their stake size minimal to account for the dangers.

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