Nvidia just made a 147% profit bet on this AI stock

It is difficult to make a profit of 147% in a few months, but there it is Nvidia (NASDAQ: NVDA) made with an investment of millions of dollars this year. The investment was one of many AI companies Nvidia decided to back. They were all companies he worked with in the past, so he probably knows them pretty well. Despite the huge profit, Nvidia seems to be keeping its stock purchases fairly recent. Investors looking for maximum growth should consider entering.

This AI stock could have 1,000% more upside

Less than a year ago, Nvidia invested $3.7 million SoundHound AI (NASDAQ: SOUND) stock. The stock is up 147% since then, but there’s reason to believe it could go higher 10 times in long term value. But before you invest, there are a few things you need to consider.

At its core, SoundHound AI is a company focused on bringing AI to all things audio. From voice assistants to direct commands, anytime you converse with a speaker, SoundHound AI wants its technology to be there. With more than a decade in operation, the company has amassed over 200 patents and an impressive client list that has continued to grow.

In 2022, for example, he signed a seven-year contract with Hyundai to power its voice-based AI capabilities. Drivers will be able to chat with their vehicles not only to send messages, get directions or switch on the air conditioning, but also to check maintenance issues and discuss how the vehicle has been performing. It’s impressive stuff. In the next few years, that huge owner’s manual sold with new cars could be replaced by a simple conversation — one carried directly between you and the vehicle.

SoundHound AI has signed several vehicle manufacturers as customers. But it’s in other industries, too, including restaurants and fast-food chains. Applebee’s and White Castle, for example, are testing the technology to improve order times and reduce overall costs. This is probably one of the most popular ways we will all interact with AI technologies in the near future.

Despite its sizable technology portfolio, growing customer base, and sizable end markets — not to mention Nvidia’s backing — SoundHound’s market cap remains just under $2 billion. To grow 1,000% in value, the company would need to reach a valuation of around $20 billion. That’s not a problem in the volatile AI industry, which could be one of the biggest growth opportunities in a generation.

The stock trades at 22 times sales, but over the past two years, earnings have grown more than 150%. If it can replicate those growth rates, the stock would trade between 5 and 6 times earnings in 2026. That’s a much nicer valuation, though it will take some patience and execution to get there.

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Should you invest in SoundHound?

Clearly, SoundHound AI’s end markets would support a $20 billion valuation. According to management, the voice AI market has a total addressable market size of at least $140 billion. SoundHound AI’s unique technology can be used in a variety of industries, and its early start bodes well for its ability to capture an ever-increasing share of a growing opportunity.

But there’s a reason SoundHound still trades at a market cap of $1.7 billion. The company remains unprofitable, meaning it must constantly seek financing to remain solvent. This limits its ability to invest in research and development, which is probably the most valuable use of funds in the long term.

R&D spending last year was only about $56 million — 30% reduction to peak spending in 2023. Big tech companies, incl Apple and Alphabetinvest billions of dollars in this space. Long-term competition will be intense, and it’s unclear whether SoundHound AI has the capital to survive, let alone thrive.

If you’re looking for a speculative growth stock with huge long-term potential, SoundHound AI might be for you. Nvidia support is definitely a plus. But volatility should remain high, and the potential downside is also considerable. This is truly a boom or bust investment option for risk tolerant investors only.

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Suzanne Frey, chief executive at Alphabet, is a member of the Motley Fool’s board of directors. Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Alphabet, Apple and Nvidia. The Motley Fool has a disclosure policy.

Nvidia just made a 147% profit bet on this AI stock was originally published by The Motley Fool