Better AI Stock: SoundHound AI vs. Nvidia

Artificial intelligence (AI) is already transforming industries and has the potential to influence everything from automotive transportation to pharmaceutical discovery. With AI's potential to impact nearly every sector, some of the latest estimates from PwC say AI could be worth $15.7 trillion by 2030.

Two companies making significant inroads into AI right now are the conversational AI platform company SoundHound AI (NASDAQ: SOUN) and semiconductor company Nvidia (NASDAQ: NVDA). While each is targeting a different segment of AI, the stocks of both companies have soared lately. Nvidia is up 137% over the past 12 months, while SoundHound's shares have gained a staggering 730%.

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But which is the better AI stock? Let's look a closer at each one to find out.

Image source: Getty Images.

The case for SoundHound AI

SoundHound is a leader in the conversational AI space, with the company's platform being used by more than 200 enterprise customers to improve customer service and interact more easily with devices. For example, Chipotle uses SoundHound's tech to automate drive-thru and phone ordering, while Stellantis uses it for voice-activated commands in its automotive brands.

While the company used to rely more on a handful of large companies for its revenue, it's made huge strides diversifying its sales recently. Only 12% of revenue now comes from its largest customers, down from 72% last year.

Notably, the company has also expanded its services into new markets, including restaurants, financial services, healthcare, and insurance. Each of these contributes from 5% to 25% of sales, an improvement from last year when 90% of all revenue came from SoundHound's automotive customers.

Sales rose 89% in the third quarter (ended Sept. 30) to $25.1 million, and more growth is likely on the way. Management forecast $165 million in sales, at the midpoint, for 2025, which would be double 2024's estimated sales of $83.5 million.

The case for Nvidia

Nvidia's opportunity comes from its position as the leading artificial intelligence semiconductor company. Nvidia's processors are in an estimated 70% to 95% of AI data centers, and there's no indication it'll lose that lead anytime soon.

Nvidia recently released its latest Blackwell processors; the company said recently that demand is already outpacing supply. The largest tech companies in the world are in an AI race right now, spending mountains of money to build AI infrastructure. The result, as Nvidia CEO Jensen Huang has surmised, will be a doubling of AI data center spending over the next five years, reaching $2 trillion.

With Nvidia's processors already dominating AI data centers and its new Blackwell system in high demand, the company's long-term potential is well intact. And a recent announcement by the Trump administration of up to $500 billion in data center spending in the U.S. could lead to even more demand for Nvidia's processors as Oracle, Softbank, and OpenAI build the systems they need to fuel future AI advancements.

Another huge plus for Nvidia is that both sales and earnings are firing on all cylinders. Revenue rose 94% in the third quarter (ended Oct. 27) to $35.1 billion, and net income jumped 109% to $19.3 billion. With more data center spending on the way, Nvidia's future looks very bright.

Nvidia is the better buy

There's no denying that both of these companies have lots of potential to benefit as AI grows. But the big advantage Nvidia has over SoundHound is that it's already massively profitable.

Nvidia's diluted earnings more than doubled in the most recent quarter to $0.78 per share, while SoundHound had a non-GAAP (generally accepted accounting principles) net loss of $0.04 per share. SoundHound narrowed its losses from the year-ago quarter, but if we're strictly looking at profitability, Nvidia wins hands down.

Also, SoundHound's share price surge over the past few years has made its shares look pricey. The company's stock has a price-to-sales ratio of 74 right now, which means investors are paying a hefty premium to own it.

Nvidia, in contrast, has nearly everything AI investors want. It's profitable, it has plenty of room to grow as AI investments expand, and its shares are relatively well priced with a forward price-to-earnings ratio of 34, compared to the tech-heavy Nasdaq-100's 26.4. For all of those reasons, Nvidia looks like the far better AI stock right now.

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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Nvidia, and Oracle. The Motley Fool recommends Stellantis and recommends the following options: short March 2025 $58 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.