Both Sound dog (NASDAQ: SOUN) and Nvidia (NASDAQ: NVDA) They are direct beneficiaries of AI. One produces the chips needed to make our AI future possible. The other developed its own proprietary AI platform that could power everything from cars to drive-thru windows.
If you want to bet on AI, it would make sense to buy shares of both companies, but some important differences should guide your investment strategy.
Do you want maximum growth potential?
If you’re looking for maximum growth potential, the obvious choice is SoundHound. The math isn’t complicated. SoundHound’s market cap is currently around $1.3 billion. Nvidia’s valuation, meanwhile, is closer to $3 trillion. Simply because of its size, SoundHound’s stock has a much better chance of rising another 1,000% than Nvidia’s. For its stock to rise 10 times its value, Nvidia would have to add more value than Nvidia. Microsoft, Target platforms, Appleand Amazon combined… and then some. SoundHound, meanwhile, would only need to add 0.3% to Nvidia’s current value.
Simply put, SoundHound’s diminutive size gives it greater potential than Nvidia. But will SoundHound be able to realize that potential? There’s one factor that plays strongly in its favor: the relevance of SoundHound’s platform to a wide range of industries.
At its core, the company’s technology enables voice and sound recognition, plus natural language understanding that enables responses via AI. Imagine ordering food through an AI-powered drive-through, talking to your car about maintenance issues, or simply selecting a song. You might also want to talk to your TV about what shows you should watch next. SoundHound, in fact, has contracts with companies working on these very problems, with a total order book valued at nearly $700 million, up from $330 million just a year ago.
For all its potential, SoundHound stock isn’t perfectly priced. The stock trades at a lofty 19 times sales, but revenue growth rates have averaged roughly 60% annually. There’s a good chance that double-digit growth rates will continue for another decade or more, a future that would make the current premium valuation look reasonable in retrospect. Emerging tech companies like this one typically exhibit a lot of short-term volatility, but patient investors looking for maximum growth potential should like what they see.
Bet on artificial intelligence
Nvidia has very little to prove at the moment. In a very short period of time, the company has become the largest AI company in the world, and a large percentage of its business depends on the growth of the AI industry.
“In fiscal 2022 (ending January 2022), Nvidia generated 46% of its revenue from its gaming GPUs, 39% from its data center GPUs, and the remainder from its OEM, professional display, and automotive chips,” explains Leo Sun, another Fool contributor. How quickly that breakdown changed! During the first fiscal quarter of 2025, Nvidia generated 87% of its revenue from data center chips and just 13% from everything else, including gaming.
“It generated $22.6 billion in data center revenue in that single quarter compared to its total revenue of nearly $27 billion for all “That breakneck expansion transformed Nvidia from a more diversified GPU maker to a company betting on AI chips.”
This all-in approach certainly has its risks. Over the past five years, Nvidia’s valuation has gone from around 10 times sales to nearly 40 times sales. The company’s growth rates — revenue grew 262% year-over-year in the most recent quarter (Q1 FY2025) — have more than justified the increase in its multiple. However, there’s no denying that Nvidia’s stock price now hinges on two things. First, a continued massive increase in AI spending. Second, its ability to maintain its dominant market lead.
Over the decades, chip wars have produced many repeated winners and losers. Just take a look at the long-term price charts of AMD, Inteland Nvidia. Today’s winners and losers don’t necessarily stay that way forever, even if the transition takes years. AMD’s MI300 Instinct GPUs are already beating Nvidia’s H100 GPUs in several benchmarks, as are Intel’s Gaudi 3 AI accelerators. Nvidia’s next-generation Blackwell chip is coming to market as we speak, perhaps stemming the tide of rising rivals.
Make no mistake: Nvidia remains a great investment for those who are bullish on AI. But if you’re looking for the best value for money, don’t ignore lesser-known stocks like SoundHound.
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John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Ryan Vanzo has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: January 2025 $45 call options on Intel, January 2026 $395 call options on Microsoft, August 2024 $35 call options on Intel, and January 2026 $405 call options on Microsoft. The Motley Fool has a disclosure policy.
Best AI Stocks: Nvidia vs. SoundHound was originally published by The Motley Fool