Investors Eyeing AI Stocks Should Consider Nvidia Over SoundHound
In recent months, SoundHound AI (NASDAQ: SOUN) captured the market's attention with its impressive rally, surging nearly 128%. However, the company’s stock experienced a dramatic downturn, plummeting by about 55%, amid concerns that its growth might not keep pace with its lofty valuation. Currently, SoundHound AI trades at a P/S ratio of 22 times sales, significantly outstripping the U.S. technology sector’s average of 7.2 times sales. Despite a predicted resurgence in revenue growth and a strong pipeline, SoundHound’s position as a smaller player could potentially expose it to fierce competition.
In contrast, Nvidia (NASDAQ: NVDA), renowned for its stronghold in the AI chip market, emerges as a more formidable contender for those looking to invest in the AI sphere. Nvidia dominates with over 90% market share in AI chips, pushing its growth trajectory well above SoundHound’s. For fiscal 2024, Nvidia announced a staggering 126% increase in revenue, reaching almost $61 billion, while SoundHound reported a 47% revenue increase to $46 million. Moreover, Nvidia is forecasted to accelerate its revenue growth to 81%, amounting to $110.5 billion in fiscal 2025.
Nvidia’s edge extends beyond sheer revenue figures. The company reported a significant improvement in non-GAAP gross margin to 73.8% in fiscal 2024, up from 59.2% previously, highlighting its robust pricing power in the AI chip sector. In comparison, SoundHound tackles a net loss, albeit reduced from prior figures, casting doubts on its short-term profitability outlook.
The growth narrative strongly leans in favor of Nvidia, thanks to its expansive addressable market opportunities spanning gaming, automotive, and digital twins, in contrast to SoundHound’s projected market reach of $160 billion by 2026. Nvidia’s potential to capitalize on a $773 billion GPU market by 2032 and additional opportunities in PC GPUs and digital twin technologies signifies a broader horizon for growth.
Valuation-wise, despite a higher current sales multiple, Nvidia’s forward-looking potential and profitability metrics position it as a more appealing investment option in the tech sector. With both companies standing at similar forward P/S ratios, Nvidia’s profitability and lower forward earnings multiple compared to the sector average make it an attractive proposition.
In sum, for investors who missed the SoundHound rally and are scouting for lucrative AI investments, Nvidia presents a compelling case. Its dominant market position, robust growth outlook, and sound financial health underscore its potential to offer long-term investor gains, making it a standout choice in the burgeoning AI market.
Analyst comment
Positive news.
As an analyst, the market is expected to favor Nvidia over SoundHound due to Nvidia’s dominant market position, strong revenue growth, and profitability. Nvidia’s expansive addressable market opportunities and potential for long-term investor gains make it an attractive investment option in the AI market.
