1 Reason SoundHound AI Could Be the Next Nvidia

Growth investors are racing to find the next Nvidia. Since 1999, its shares have risen by more than 253,000%. A relatively small investment would have turned into millions of dollars over that time frame.

While there are some distinct differences, SoundHound AI (NASDAQ: SOUN) has one major similarity to Nvidia. The latter's rise, especially in recent years, is fueled by the rise of artificial intelligence (AI). Based on this, SoundHound investors have a front row seat to future growth.

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Investment in AI has gone berserk

Perhaps the biggest contributor to the rise of Nvidia in recent years has been the rapid increase in investment for AI infrastructure. The company manufactures specialized GPUs that are crucial for training and running AI networks and services. Increased spending on nearly anything AI ultimately results in higher demand for its products.

In the first half of 2024, spending on AI infrastructure spiked by 97% globally, reaching nearly $50 billion. By 2028, it's expected to reach more than $200 billion. So, expect Nvidia's revenue to continue growing by double-digit percentages for years to come.

How does all this translate to SoundHound? As a provider of AI services, it is positioned a bit differently than a hardware provider. But spending on the type of services it provides should also see consistent growth in the years to come.

As its name suggests, SoundHound is focused on applications dealing with the human voice -- think AI agents answering customer service calls, responding to drive-thru orders, and interacting with drivers about their vehicles' maintenance needs.

It already has pilot programs in each of these three areas, partnering with dozens of globally recognized brands to generate real-world case studies.

Juniper Research categorizes this opportunity as the "global conversational AI market," which it values at roughly $14.6 billion. With annual revenue of $84 million, SoundHound would already command about a 6% market share.

And Juniper forecasts this market will more than double to $30.8 billion by 2029. With a strong portfolio of early-stage customers, a rapidly growing end market, and a market share that leaves plenty of room for growth, SoundHound has the ability to massively boost its revenue this decade.

Could SoundHound AI stock rise 1,000% or more?

Here's the problem: The stock is very expensive, trading at 33 times sales. So even though analysts expect sales to jump by 96% in 2025 and 29% in 2026, much of that growth is already priced into the shares. This will limit overall upside potential, but that doesn't mean the stock isn't a buy.

NVDA PS Ratio data by YCharts; PS = price to sales.

It's unlikely that SoundHound has 1,000% in potential upside this decade, let alone the huge growth posted by Nvidia over its history. Yes, sales increases should be impressive in the years to come. But much of that will likely be offset, at least from a shareholder perspective, by a reduction in the stock's price-to-sales multiple.

In one major way, the company has a lot in common with Nvidia. Its end market is growing very quickly, fueled by continued investment in AI. It could soon be another AI player that many investors are familiar with.

But is it able to replicate Nvidia's meteoric rise? Likely not. The GPU maker is exposed to the entire AI market, while SoundHound is targeting a single category, one that is growing slower than AI infrastructure.

SoundHound AI is still an appealing growth stock for aggressive investors, but those looking to profit from the artificial intelligence revolution might be better off with a more mature, diversified player like Nvidia.

Should you invest $1,000 in SoundHound AI right now?

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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.