Nvidia Exits SoundHound Investment Amid Revenue Surge

Nvidia's stock market position raises eyebrows as they sold their stake in SoundHound. While SoundHound posts impressive 85% revenue growth, it suffers a staggering net loss, prompting mixed investor sentiment.

Date: 14-03-2025

AI Rating: 5

Nvidia's Investment Moves: Nvidia has gained significant valuation through robust sales of its AI chips, leading to a rise of over $2.2 trillion in the last two years. However, recent actions, including divesting from AI developer SoundHound, could raise red flags for investors assessing both Nvidia and SoundHound's future prospects.

SoundHound's Revenue Growth: SoundHound has shown remarkable revenue growth, jumping 85% to $84.7 million in 2024. This marks an upswing from a previous 47% increase in 2023. Such growth demonstrates a strong demand for its conversational AI technology, which is being adopted by major global brands across various sectors.

Customer Diversification: The company has improved its revenue diversification with its large customer base, as the biggest client now contributes only 14% of total sales, up from more than half in 2023. This strategy should help SoundHound reduce risks associated with dependency on single clients.

Impressive Order Backlog: Ending the year with a $1.2 billion order backlog—up 75% from 2023—is a strong indicator of potential future revenue growth. Expected revenues as high as $177 million in 2025 suggest acceleration, hinting at an exciting future, provided execution aligns with these forecasts.

Concerning Losses: Despite the impressive revenue figures, SoundHound reported a staggering net loss of $350.6 million in 2024, which is a 294% increase from the previous year. This raises concerns about sustainability as the company manages cash reserves of only $198 million while continuing to post substantial losses.

Valuation Issues: SoundHound's current stock valuation remains high, trading at a P/S ratio of 34.2 based on its last year’s revenue. Even with a forecasted P/S ratio of 17.9 for 2025, this remains above Nvidia's 12.7, suggesting investor caution regarding valuation in comparison to established players in the AI market.

Overall, Nvidia's decision to sell its stake in SoundHound could signify apprehension about future performance or valuation levels, warranting careful consideration by potential investors.

Stocks: NVDA SOUN