Nvidia Pumps $71 Million into Smaller AI Companies' Shares
Nvidia Pumps $71 Million into Smaller AI Companies' Shares
Nvidia (NVDA -1.41%) is experiencing immense demand for its graphics processing units (GPUs). The tech giant supplies these chips for various sectors such as gaming, data centers, automotive, and AI research. This demand is generating a surplus of revenue for Nvidia, and they're seeking ways to utilize this excess cash effectively. One of the strategies Nvidia employs is making strategic investments in companies that aid in the widespread adoption of their products.
Nvidia's third-quarter 13F filing revealed that it still owns 1.7 million shares of SoundHound AI (SOUN 0.89%), a leader in voice assistance technology. Moreover, it disclosed a new position in Applied Digital (APLD 3.14%), a fast-growing company specializing in data center design and construction. Both companies have a beneficial alliance with Nvidia. Nvidia's investment in SoundHound was worth $8 million at the end of the quarter, while its investment in Applied Digital amounted to a significant $63 million.
Investors might want to consider these two ventures, as suggested by Nvidia.
1. SoundHound AI
SoundHound AI is a moderately sized company with a market capitalization of approximately $2.3 billion at the time of writing. The stock has gone through a series of ups and downs in recent years but has more than doubled its price in the past twelve months.
The demand for SoundHound AI's AI-enabled voice technology remains robust. Revenue increased by 89% year over year in Q3, thanks in part to revenue generated from the acquisition of Amelia, an AI software company that is helping SoundHound expand into new markets outside of the automotive and restaurant sectors. Despite this, SoundHound's core markets continue to display remarkable growth potential.
Back in the early part of the year, SoundHound and Nvidia collaborated to provide voice AI assistance through Nvidia's DRIVE platform. SoundHound's technology is also gaining traction in the electric car market, with Stellantis making use of SoundHound Chat AI across seven of its car brands. Management is looking to expand its technology to industries such as financial services, healthcare, and retail.
The company is expected to demonstrate its ability to generate profitable growth. Although SoundHound reported an adjusted net loss of $15 million in Q3, which remained constant compared to Q2, management anticipates a profit on an adjusted EBITDA basis by the end of 2025.
Given its potential for growth across numerous markets and the possibility of turning a profit in the near future, SoundHound's stock has the potential to deliver substantial returns for investors.
2. Applied Digital
Nvidia is witnessing increased demand for its GPUs, particularly from data centers. Applied Digital, a small-sized company, makes the most of this trend. As of writing, the company has a market cap of $1.8 billion, and its stock has surged by 112% over the last year.
Applied Digital constructs data centers for AI, cloud services, and cryptocurrency mining. Revenue spiked by 67% year over year in the last quarter, and interest from significant clients for 2025 and 2026 is steadily growing.
As a smaller business, Applied Digital faces resource constraints. However, Nvidia's recent investment is crucial for Applied Digital's growth prospects. The investment by Nvidia and other accredited investors significantly bolstered the company's financial strength, opening up opportunities for high-return projects that will drive further growth. Nvidia benefits by contributing to the growth of more data centers, resulting in increased sales for its GPUs.
Applied Digital aspires to be a major player in the operation of multiple high-performance data centers. In its recent earnings report, it announced that it was finalizing a lease agreement for a state-of-the-art, 369,000-square-foot facility suited for handling AI workloads in the United States.
The cloud service business is also showing promise. It accounted for nearly half of the company's revenue in the last quarter, and it continues to explore new opportunities for growth. Applied Digital reported a profit of $20 million on an adjusted EBITDA basis in the quarter, and the stock is trading at an enterprise value-to-EBITDA ratio of 21 based on the consensus EBITDA estimate for the current fiscal year on Wall Street. It's a reasonable valuation for a fast-growing tech company. Assuming Applied Digital's profitability improves, the stock could deliver impressive returns in the coming years.
- In light of Nvidia's investment in SoundHound AI, investors might be interested to know that the company is actively exploring opportunities in various sectors beyond automotive and restaurants. SoundHound's voice AI technology is currently gaining traction in the financial services, healthcare, and retail industries, which could potentially lead to significant growth and returns for the company.
- Nvidia's strategic investment in Applied Digital is beneficial for both parties. Applied Digital, a company specializing in data center construction, is seeing a surge in demand for its services due to the increased use of GPUs in data centers. With Nvidia's investment, Applied Digital can undertake high-return projects, contributing to increased GPU sales for Nvidia in the long run.