Nvidia Recently Bought 5 Artificial Intelligence (AI) Stocks. These 2 Stand Above the Rest.

Nvidia Recently Bought 5 Artificial Intelligence (AI) Stocks. These 2 Stand Above the Rest.

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 now stands alongside Apple And Microsoft in the $3 trillion club.

The 826% rise in Nvidia’s stock price during this period is due to strong demand for its data center graphics chips (GPUs), designed to develop artificial intelligence (AI) models. During the recent first quarter of fiscal 2025 (ended April 28), Nvidia’s data center revenue increased 427% year over year to a record $22.6 billion. dollars.

Late last year, Nvidia decided to spread some of its newly acquired wealth by investing in five other AI companies. These developments could indicate where CEO Jensen Huang believes the next wave of value will be created in the AI ​​space.

Nvidia Recently Bought 5 Artificial Intelligence (AI) Stocks. These 2 Stand Above the Rest.

Image source: Nvidia.

The five stocks purchased by Nvidia 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:

  1. Arm holds (NASDAQ:ARM)which designs processors for chip giants like Nvidia.

  2. AI SoundHound (NASDAQ:SON)which develops virtual assistants based on its conversational AI technology.

  3. Nano-X Imagingwhich improves medical imaging using AI.

  4. Recursive Pharmaceuticalswhich accelerates drug discovery using AI.

  5. TuSimple Holdings, which develops autonomous driving for the trucking and logistics sectors. However, Nvidia recently sold this stake according to its latest 13F filing published on May 15.

Nvidia’s position in Arm was worth $147 million at the end of 2023, but it has since grown to $268 million thanks to a 98% gain in the stock so far in 2024. Arm is Nvidia’s largest holding Nvidia.

SoundHound received a smaller investment, with Nvidia’s position worth $3.7 million at the end of 2023. But SoundHound stock has soared 123% this year so far, catapulting the value of Nvidia’s stake at 8 million dollars.

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

1. Arm holds

Arm built the architecture businesses love Nvidia, Advanced microsystems, and even iPhone giant Apple uses it to design its chips. Four years ago, Nvidia tried to buy Arm for $40 billion, but the deal was canceled because regulators deemed it anticompetitive. Given that Arm now has a market cap of $143 billion, Nvidia missed out on a real windfall.

Arm is the world’s most popular central processing unit (CPU) architecture. A staggering 99% of smartphones use chips designed by Arm, and the company’s CEO recently told Reuters that it could capture 50% of the Windows PC market within five years. Microsoft fuels demand for Arm’s technical expertise as it integrates quickly AI in the Windows operating system (and its own PCs and devices), which requires 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 processors that can infer AI models five times faster than its H100 GPU, which is currently the dominant chip in AI data centers. As a result, 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 (ended March 31), an increase of 21% from fiscal 2023. Although this is a rate of solid growth and the company is undoubtedly essential to the future of AI, investors should be aware that the stock is quite expensive.

Based on Arm’s revenue of $3.2 billion and market capitalization of $143 billion, its shares trade at a price-to-sales (P/S) ratio of approximately 44. comparison, Nvidia’s P/S ratio is around 37, and it’s expected to grow. its revenues by 98% this financial year. In other words, it’s hard to justify paying a higher valuation for Arm relative to Nvidia when Arm is growing revenue at a much slower rate.

Remember, Nvidia’s late 2023 investment in Arm stock was at about half the price it trades at today, which represented a more reasonable valuation. It doesn’t look as attractive right now, so investors should probably wait for a pullback before buying.

2. SoundHound AI

SoundHound AI uses voice recognition technology to create a portfolio of AI-powered virtual assistants. They can recognize voice prompts and respond in kind, meaning they can hold entire conversations without the user typing a single word. The company has developed its own AI models, but it also integrates those from leading third parties like OpenAI.

The restaurant industry uses SoundHound to autonomously accept customer orders over the phone, drive-thru and in-store. SoundHound also began rolling out the new Employee Assist tool, which workers can tap at any time to instantly access everything from store policies to instructions for preparing a food or drink. Krispy Kreme, Chipotle Mexican GrillAnd Papa Johns are just some of SoundHound’s customers.

SoundHound technology is already operational in 10,000 locations, with 100,000 more in the pipeline. However, the company estimates its addressable market includes more than 1 million restaurants and 30 million other businesses in North America, representing an opportunity worth $100 billion.

The company has also created an AI voice assistant for cars. Manufacturers like Mercedes-Benz And Stellar (Alfa Romeo, Jeep, Dodge) are already using it, allowing drivers to ask questions on many topics, and even access information about their vehicle’s features.

SoundHound is also now paired with Nvidia’s Drive platform to deliver cutting-edge AI, meaning drivers won’t need network connectivity to access their AI assistant. This expands the number of use cases and also improves privacy as conversations remain in a closed loop.

The stock trades at a slightly more reasonable valuation than Arm. Based on its trailing 12-month revenue of $50.8 million and market cap of $1.5 billion, its P/S ratio is just over 30. However, the company is losing quite a bit of money, including $33 million in the recent first quarter. from 2024 only. With only $226 million in cash on hand, it may have to raise more cash through a stock offering in the future, which would dilute existing investors. This is an important risk to consider.

On the positive side, the company has a large backlog worth $682 million, which is expected to turn into revenue over time. However, investors who want to follow Nvidia in this stock should keep their position size relatively small to account for the risks.

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Anthony DiPizio has no position in any of the stocks mentioned. The Motley Fool holds positions 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 on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Nvidia recently bought 5 artificial intelligence (AI) stocks. These 2 stand above the rest. was originally published by The Motley Fool

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