Nvidia is betting millions on this AI stock. It increased by 165%.

At the beginning of this year, Nvidia (NVDA -0.19%) revealed that it has invested capital in several promising artificial intelligence (AI) companies. Management clearly believed the investments would pay off, but also positioned the company as a direct enabler of its end markets.

After all, Nvidia isn’t an AI company per se. Rather, it provides the AI ​​industry with critical components such as graphics processing units, or GPUs. By investing in the general growth of artificial intelligence, Nvidia can not only see a potential return on investment, but also drive long-term demand for its own products.

No matter how excited Nvidia’s management was about its capital allocation decisions, few likely predicted what would happen with one of the investments. Following Nvidia’s $3.7 million investment in February, SoundHound AI (SOUND -1.05%) saw his rating increase by 165%. And there could be even more advantages to be had.

Nvidia has already made millions from this little AI stock

Weeks after Nvidia revealed its investment in SoundHound, the two companies unveiled a partnership that will see their products packaged together, including an in-vehicle voice assistant that “uses a full-edge large language model (LLM) in while running on the Nvidia Drive Platform,” SoundHound announced in May.

In short, vehicles running the Nvidia Drive platform will be able to access SoundHound’s voice recognition platform to provide AI capabilities to the driver and passengers even without an internet connection. The use cases are interesting. You can get a playlist of songs from your favorite streaming provider, ask about news or current events, or even chat with your car about its maintenance history and potential future repair needs. With SoundHound, your car essentially becomes an AI agent, able to converse with and take into account almost anything you throw at it — all running locally, with no connection required.

SoundHound has built a reputation for services like this. All, unsurprisingly, deal with the intersection of AI and sound.

Several fast-food restaurants are testing products for drive-thru windows — a smart way to increase ordering efficiency and lower operating costs. Tech companies have integrated their software into their apps, allowing users to better interact with their services through natural voice commands. And a lot of other business — from Block TO Oracle — already use SoundHound to operate their customer service lines.

There’s no doubt that Nvidia’s investment caused a boost in SoundHound’s valuation. It’s a strong vote of confidence and a promising sign that SoundHound will be able to continue to source the critical components needed to operate and improve its technology. Wall Street analysts expect the company to grow sales by about 84% next year, from $83 million to more than $150 million.

SOUN Revenue (TTM) data by YCharts

Should you buy SoundHound stock today?

There’s a lot to like about SoundHound. It operates in the AI ​​space — perhaps the biggest growth opportunity in a generation — and has the backing of major industry vendors like Nvidia, who are putting their money where their mouth is. But should you join Nvidia and buy SoundHound stock for your portfolio?

According to data from Grand View Research, the voice AI market is expected to grow by nearly 30% annually from 2024 to 2030. So far, SoundHound has been able to exceed these growth estimates. But now trading at 23 times sales, those high growth rates have likely already been baked into the stock. This is especially true given that the company will face increasing competitive pressures from global tech giants, almost all of which are investing billions in its own voice AI platforms. For comparison, SoundHound’s total research and development budget is only about $56 million.

SoundHound is off to a promising start, but Nvidia’s investment has put it on the map for many growth investors. If it can handle the growing competition, it could be an investment for this exciting AI company.

But the steep valuation should prompt most investors to look elsewhere. Only if you’re a big fan of SoundHound’s specific technologies and are willing to stay invested through years of potential volatility should you initiate a position with Nvidia.