Nvidia Buys Into Speech Recognition with Stake in SoundHound AI

SoundHound AI has seen a significant downturn since its initial public offering in April 2022, following a merger with a SPAC. Starting at $8.72, its stock initially peaked at $14.98, only to fall to under $2 in the following months. The decline in investor enthusiasm was prompted by reduced revenue growth, mounting losses, and heightened interest rates shrinking its valuation, marking it as yet another SPAC company that couldn't sustain its early hype.

Nvidia's Investment in SoundHound AI

However, the landscape shifted for SoundHound on Feb. 15, when Nvidia revealed a $3.7 million investment in the firm. While this might seem insubstantial against Nvidia's substantial cash reserves, it's perceived as a vote of confidence for SoundHound. Prior to this, Nvidia's GPU Ventures participated in a 2017 funding round for the company, aiming to nurture a viable competitor in the voice recognition market. With products like its music recognition app and the Houndify platform for creating voice-enabled services, SoundHound has been working to establish itself beside big names like Alphabet, Microsoft, and Apple.

Nvidia, now owning around 0.7% of SoundHound's outstanding shares, seems to bet on the company's growth and on the expansion of the generative AI market, a domain heavily reliant on Nvidia's GPUs.

To Invest or Not to Invest?

While Nvidia's stake indicates potential in SoundHound's offerings, potential investors should consider SoundHound's recent performance marked by decelerating revenue and ongoing losses. Despite some recovery indicated in the company's guidance and analysts' expectations for a growth in revenue, there remains concern over the company's profitability and liquidity given its modest cash on hand and high debt-to-equity ratio.

SoundHound's market position seems to be strengthening within its niche in voice recognition technology, which could justify its premium valuation. Still, the cutback of half of its workforce and the lack of imminent GAAP profitability creates apprehension. Nvidia's cautious investment approach suggests a speculative potential for SoundHound, but with reservations about the company's immediate growth trajectory.

In summary, investors might follow Nvidia's example by cautiously investing in SoundHound's stock, yet they should manage their expectations and not assume Nvidia's involvement guarantees increased stability in the stock's price.

Nvidia, SoundHound, Investment