Nvidia (NASDAQ: NVDA) is one of the most closely watched companies in the world. It was once primarily known as a top supplier of gaming GPUs for PCs, but it subsequently evolved into the dominant producer of high-end data center GPUs.
Nvidia now generates most of its revenue from its data center GPUs, and demand for those chips is still outstripping supply as the artificial intelligence (AI) market expands. That’s why its stock rallied more than 3,000% over the past five years, and why it’s considered a linchpin and bellwether of the AI industry.
Image source: Getty Images.
Nvidia could still have plenty of room to run as more companies launch AI applications, but the chipmaker has also been buying up shares of smaller AI companies. Let’s look at five of those investments and see whether they could have a spot in your portfolio.
In a 13F filing earlier this year, Nvidia disclosed its investments in five companies as of Dec. 31, 2023: SoundHound AI (NASDAQ: SOUN), Arm Holdings (NASDAQ: ARM), Recursion Pharmaceuticals (NASDAQ: RXRX), Nano-X Imaging (NASDAQ: NNOX), and TuSimple Holdings. Here’s how much Nvidia invested in each of those companies, and how much their shares have rallied or declined since that disclosure.
Company
Shares Bought
Market Value 12/31/2023
Market Value 7/6/2024
Gain (Loss)
SoundHound AI
1,730,883
$3.67 million
$7.25 million
98%
Arm Holdings
1,960,784
$147.34 million
$355.27 million
141%
Recursion Pharmaceuticals
7,706,363
$75.98 million
$56.41 million
(26%)
Nano-X Imaging
59,632
$0.38 million
$0.41 million
8%
TuSimple Holdings*
3,465,372
$3.04 million
$0.87 million
(71%)
Data source: Nvidia. *TuSimple delisted itself from the Nasdaq and moved to the OTC market in January 2024.
SoundHound AI and Arm generated much bigger gains than the other three stocks. SoundHound develops audio and speech recognition technologies, and its Houndify platform has been used to create customized voice tools for automakers like Hyundai, smart-TV makers like Vizio, and fast-food chains like Church’s Chicken.
Arm designs power-efficient chips that are used in about 99% of the world’s premium smartphones. Chipmakers like Qualcomm, MediaTek, and Apple all license Arm’s designs for their own mobile chips. Nvidia also licenses Arm’s designs for its Tegra CPUs, which are used in set-top boxes, Nintendo‘s Switch consoles, and automotive infotainment systems.
Nvidia has been bullish on both of these AI companies for a long time. It was one of SoundHound’s earliest investors when it was still a start-up, and it nearly acquired Arm for $40 billion before antitrust regulators scuttled the deal in 2022.
Recursion, Nano-X, and TuSimple are smaller and more speculative companies. Recursion uses AI algorithms to process drug discovery tests, Nano-X is a producer of digital X-ray sources and develops AI tools for identifying undetected chronic diseases, and TuSimple is a Chinese autonomous trucking company.
Out of these five companies, only Arm is consistently profitable on a generally accepted accounting principles (GAAP) basis. Therefore, it’s easier to compare these five stocks using their estimated revenue growth and enterprise values.
Company
Revenue (Last Fiscal Year)
Enterprise Value
EV/Revenue Ratio (Current Fiscal Year)
Estimated CAGR (Next 2 Fiscal Years)
SoundHound AI
$45.9 million
$1.3 billion
20
50%
Arm Holdings
$3.2 billion
$185.1 billion
47
23%
Recursion Pharmaceuticals
$44.6 million
$1.6 billion
27
19%
Nano-X Imaging
$9.9 million
$395.3 million
25
130%
TuSimple Holdings
$0.3 million
$60.9 million
198
N/A*
Data source: Marketscreener. *Due to delisting from Nasdaq. CAGR = compound annual growth rate.
None of these stocks look cheap right now, but SoundHound arguably looks like the most reasonably valued one relative to its growth potential. Arm runs a more stable business, but its valuation has been inflated by the buying frenzy in AI stocks.
Recursion and Nano-X are developing promising technologies, but they haven’t scaled up their businesses yet. As for TuSimple, the autonomous trucking company was caught in the crossfire of the escalating tech war between the U.S. and China, and it voluntarily delisted its shares from the Nasdaq earlier this year. That lack of visibility, along with its steep losses and sky-high valuation, make it a tough stock to recommend.
These five stocks are all tiny investments for Nvidia, which ended its latest quarter with $7.59 billion in cash and equivalents. The GPU giant won’t lose much sleep if one of these companies goes under, but growth-oriented investors should stick with the two most established companies — namely, Arm and SoundHound — and simply keep an eye on the more speculative ones for now.
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Leo Sun has positions in Apple and Nintendo. The Motley Fool has positions in and recommends Apple, Nvidia, and Qualcomm. The Motley Fool recommends Nintendo. The Motley Fool has a disclosure policy.
Nvidia Is Buying Shares of These 5 AI Companies. Should You Do the Same? was originally published by The Motley Fool