Nvidia catapulted from a $360 billion company at the onset of 2023 to a staggering $3.1 trillion behemoth a mere 18 months later. Now standing as the third-largest company globally, trailing only Microsoft and Apple, Nvidia reigns supreme. The company’s forte lies in designing the most potent graphics processing units (GPUs) for data centers, acting as the cornerstone for developers constructing, training, and deploying artificial intelligence (AI) models. The fiscal 2025 first quarter, culminating on April 28, witnessed Nvidia’s data center revenue soaring a jaw-dropping 427% year over year to a historic $22.6 billion.

Having amassed immense wealth, Nvidia embarks on a mission to nourish burgeoning AI companies, a strategic move poised to propel industry growth, ushering in potential lucrative returns for its shareholders should the cards align favorably.

Nvidia headquarters. Image source: Nvidia.

Nvidia’s AI Investments Exploration

Per Nvidia’s latest 13F form, filed with the Securities and Exchange Commission on May 15, the chip giant holds stakes in the following AI companies:

• Arm Holdings (NASDAQ: ARM), renowned for designing the architecture employed by most semiconductor companies for chip development.
• SoundHound AI (NASDAQ: SOUN), specializing in voice recognition and conversational AI software.
• Nano-X Imaging, utilizing AI for enhanced results in medical imaging.
• Recursion Pharmaceuticals, utilizing AI in drug discovery.

The investments were made towards the end of 2023, with Arm Holdings securing the lion’s share around $147 million, surpassing Nvidia’s investment in the other three stocks combined. Presently, the Arm position boasts a value of $311 million following a 130% surge in stock value in 2024 alone.

Nvidia’s investment of roughly $3.7 million in SoundHound AI has seen the stock surge by 87% year to date, boosting its value to $6.7 million.

Arm Holdings and SoundHound AI emerge as the star performers, poised for a continued ascent.

Arm Holdings at the Helm

In 2020, Nvidia made a hefty $40 billion bid to acquire Arm, only to face regulatory obstacles branding the deal as anticompetitive. The reasoning stems from the fact that Arm furnishes the architecture utilized by numerous leading semiconductor manufacturers for chip design, including Nvidia and its close rival, Advanced Micro Devices.

Specializing in central processing units (CPUs) pivotal in personal computers, smartphones, and even in some GPUs designed by Nvidia for enhanced efficiency, Arm is a pivotal cog in the tech ecosystem. The upcoming GB200, configured with a mix of two GPUs and two Arm-based CPUs, boasts the capability of inferring AI models at five times the speed of Nvidia’s flagship H100 currently ruling the data center domain. This amalgamation is primed to slash costs for developers, often shackled with minute-by-minute computing fees.

Arm commands a whopping 99% share in smartphone CPU architecture, solidifying its dominance in the sector. Moreover, with Microsoft integrating AI into the Windows OS, a fresh wave of demand is imminent for state-of-the-art chips from computer manufacturers. Arm’s CEO Rene Haas boldly eyes a 50% slice of the Windows PC market within the next five years.

While Arm’s future appears radiant, caution is advised for investors due to its lofty valuation. Raking in $3.2 billion in revenue during the fiscal year 2024, and sporting a market capitalization of $169.8 billion, the stock trades at a price-to-sales (P/S) ratio of 53, surpassing even Nvidia’s P/S ratio of 38.7. With Nvidia’s revenue set to nearly double in fiscal 2025 while Arm is projected for a mere 23% growth, shelling out a premium for Arm vis-a-vis Nvidia may not be the wisest move at present.

Given Nvidia’s acquisition of Arm shares at a more affordable price, exercising prudence and awaiting a probable pullback before diving in seems the prudent path for investors.

The Symphony of SoundHound AI

SoundHound AI’s impressive suite of conversational AI software tools finds utility across diverse sectors like hospitality, restaurants, and automotives. These tools facilitate seamless conversations catering to fast answers often crucial in high-stress scenarios demanding swift customer service.

The restaurant industry leverages SoundHound’s innovative Employee Assist tool, proffering workers a supportive virtual assistant primed for any query round the clock. Equipped with an understanding of store policies, the tool even aids employees in crafting menu items. Furthermore, the technology extends to embracing customer orders in drive-thru lanes, over the phone, and in-store transactions.

Household names like White Castle, Chipotle Mexican Grill, and Krispy Kreme have embraced SoundHound’s offerings. Bolstered by the acquisition of restaurant AI entity SYNQ3, SoundHound has infiltrated 10,000 locations with another 100,000 in the pipeline. Management envisions a potential market exceeding 1 million eateries and 30 million businesses across North America, hinting at a colossal $100 billion market opportunity.

Leading automotive brands including Honda, Hyundai, and others deploy SoundHound’s in-car voice assistant, reflecting the widespread acclaim and adoption of the technology.