Opinion: This is the most overlooked artificial intelligence (AI) stock to buy right now

Artificial intelligence (AI) stocks led the growth market in 2024. Nvidia shares, for example, have risen in value by 140% this year. The company currently has a massive market capitalization of $2.9 trillion.

Want to make big money with AI stocks? You will need to look at smaller, lesser known companies. There’s an AI stock right now, valued at just $1.7 billion, that you should take a closer look at. In fact, Nvidia has bet nearly $4 million of its own money on this growth stock.

Bet big on AI with this small-cap stock

Earlier this year, Nvidia revealed that it had made millions of dollars in investments in a small handful of companies. Most of these companies have worked with Nvidia before, using its chips to power its AI products and services. One of those investments was a $3.7 million bet SoundHound AI (SOUND 0.62%)which traded at a $500 million valuation just before Nvidia’s investment.

SoundHound’s work with Nvidia presents a compelling example of its technology in use. In March, a joint press release revealed that SoundHound will soon release “an innovative in-vehicle voice assistant that uses a full-edge large language model (LLM) while running on the Nvidia Drive platform.” In short, SoundHound’s voice and natural language processing technology would help Nvidia’s technology interact with drivers seamlessly and effortlessly through voice conversations.

The combination of SoundHound and Nvidia’s technology platforms will allow drivers to discuss their vehicle’s maintenance history, ask questions about its needs and performance, and also discuss potential route plans and local landmarks. It’s an impressive performance, fueled simply by natural language and conversation. SoundHound’s voice recognition platform has also been used in a variety of other industries. Applebee’s and White Castle have tested their technology for drive-thrus and customer orders, while Pandora and Block tested SoundHound’s ability to provide customers with a better user experience.

SOUN Net Income Data (Quarterly) by YCharts

Interacting with AI through voice is a huge opportunity with countless end markets. SoundHound has an early lead of over 270 patents and a growing customer list that not only generates reputational benefits, but also provides a growing supply of real-world data to train and improve its AI models. Nvidia’s investment is certainly a vote of confidence, but there are some risks to understand before jumping in.

What could go wrong?

SoundHound’s relatively small valuation of $1.7 billion leaves plenty of room for long-term growth. But there are several reasons why stocks are still so cheap. The first is that the company is still losing money. It hasn’t posted a quarterly profit in years and has to constantly raise new funding. Last quarter saw a record loss of $37 million.

Second, it’s not clear that the company has enough money to compete with the big tech giants when it comes to research and development. SoundHound’s research and development budget is only about $56 million per year, and the investments have actually fallen in recent quarters. Finally, sales growth is high, around 50% per year, but the company’s valuation is extremely high. The stock is currently trading at over 24 times sales.

There are a lot of risks here, but also a lot of potential upside. The main point of caution is that SoundHound is only for long-term investors. Such stocks can be very volatile in the short term. If you want in, be sure to take a long-term view, betting on the secular growth of AI technologies and SoundHound’s place in that rise.