Artificial intelligence (AI) hardware giant Nvidia (NASDAQ: NVDA) doesn't have much in common with voice control software specialist SoundHound AI (NASDAQ: SOUN) . Nvidia is one of the largest and most profitable businesses in the world right now, while SoundHound AI is just getting its feet wet in the world of big business.
The Goliath-and-David relationship is almost comical. I mean, Nvidia invested just $3.7 million in the smaller company's stock, and the mere disclosure of that modest connection caused SoundHound AI's stock to nearly quadruple in price over the next month.
I own both stocks and plan to hold them for years to come. However, only one of them looks like a buy for new money right now. Let me show you why I expect bigger gains from the smaller stock from this starting point.
Why Nvidia might not sustain its recent burst of explosive growth
I still like Nvidia's stock for its long-term potential, despite its nosebleed-inducing valuation. The company has gained a massive 139% over the past year and a staggering 624% since Nvidia customer OpenAI released ChatGPT. As a result, the stock currently trades at 65 times earnings and 34 times sales, with a market cap of $2.75 trillion.
Look up "gigantic market footprint" in the dictionary, and you might just find an Nvidia logo on that page. And I think it's a bit too much, a bit too fast.
Nvidia's early dominance in the market for sophisticated AI chips is undeniable, but this success comes with a rich valuation. The company's leading position is challenged by rivals like AMD (NASDAQ: AMD) and Intel (NASDAQ: INTC) , who are rapidly advancing their own AI hardware solutions.
What if the next generation of mind-blowing AI tools was trained on Intel or AMD chips instead of Nvidia hardware? The market reaction to that news would be spectacular and painful.
Moreover, major AI platform clients such as Amazon AWS and Google Cloud are developing their own custom hardware, potentially reducing their reliance on Nvidia in the long run. That would also be market-movingly bad news for Nvidia investors, since hyperscale clients account for the vast majority of Nvidia's soaring sales nowadays. Data center products accounted for 89% of the company's total sales in the first quarter of fiscal year 2025. That's up from 45% two years earlier, before the ChatGPT boom started.
While Nvidia's market leadership and innovation are impressive, the stock appears to be priced for absolute perfection. Given the intense competition and the high expectations already baked into its price, I believe the days of massive gains might be behind it. The next couple of years could be volatile and some of the big price moves will almost certainly bring Nvidia's stock lower.
So Nvidia's stock remains a strong player in the tech sector, but its speculative valuation suggests that future growth may not match the explosive increases we've seen in the past. If anything, I'm keeping a close eye on Nvidia so I can take action if the share price drops too far down instead.
SoundHound AI's competitive edge
While Nvidia's dominance is clear, SoundHound AI is carving out its own niche -- and it's a really valuable one. This long-term growth story is just getting started, even though the company has been around since 2005.
There are many voice-controlled devices out there but the ostensible rivals don't really do what SoundHound AI does. Seemingly comparable tools like Amazon Alexa, Google Assistant, and Apple Siri were built to serve very different purposes, and shouldn't show up too often around SoundHound AI's deal negotiations table. SoundHound AI's specialization in high-quality audio control services, underpinned by nearly two decades of machine learning and deep learning development, sets it apart in the industry.
Its voice control technology relies on a sophisticated, multi-layered process for exceptional accuracy and understanding. It starts with capturing audio precisely, incorporating lessons learned from almost two decades of hum-based song identification. Advanced deep learning algorithms then process this data.
Next, SoundHound's proprietary Speech-to-Meaning technology extracts meaning and intent directly from spoken words in a single step, allowing fast and accurate real-time interpretations. This holistic approach not only transcribes words but also understands the context and nuances of the intended message, making it highly valuable for applications like music recognition, voice assistants, and in-car control systems.
In other words, SoundHound AI doesn't play by the same rules as the rest of the voice-based human-to-machine interactions industry. This unique high-quality service has helped the company build a $682 million backlog of subscription deals and other long-term contracts. These unfilled agreements will generate cash payments over the next several years as SoundHound AI continues to seek even more deals.
The biggest feather in SoundHound AI's cap so far is a deep partnership with car maker Stellantis (NYSE: STLA) . The SoundHound Chat AI voice assistant has entered the European and Japanese markets in Stellantis brands such as Peugeot, Alfa Romeo, and DS Automobile. A broader global launch will surely follow, not to mention SoundHound AI's growing collection of potential partners.
I'll admit that SoundHound AI's stock also looks expensive, given its negative earnings and a price-to-sales (P/S) ratio of 32. But it's a small company early in its financial growth story, and that massive backlog plays no part in the P/S ratio. This stock should be judged by the company's ability to sign more deals and generally monetize its valuable services. With a market cap of just $1.64 billion today, SoundHound AI has a long way to go before its target market gets saturated.
Why SoundHound AI is a better buy right now
There you have it. Nvidia is already an industry giant with a luxury-level stock price , best suited for buying on price drops over the next few years. SoundHound AI may look equally expensive, but its unique technology has few true peers and the greenfield market ahead looks promising. I'd gladly buy more of this exciting growth stock right now, especially since the stock price has cooled more than 50% from February's spike.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Anders Bylund has positions in Alphabet, Intel, Nvidia, and SoundHound AI. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Apple, and Nvidia. The Motley Fool recommends Intel and Stellantis and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy .
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