NVIDIA (NASDAQ: NVDA) is one of the most talked-about companies in the world, once known primarily as a top supplier of PC gaming GPUs but has since evolved into a major manufacturer of high-end data center GPUs.
Nvidia currently derives most of its revenue from datacenter GPUs, and demand for these chips continues to outstrip supply as the artificial intelligence (AI) market expands. As a result, the company’s shares have risen more than 3,000% in the past five years and it is considered a linchpin and pioneer in the AI industry.
Nvidia may still have plenty of room to grow as more companies launch AI applications, but the chipmaker is also acquiring stakes in smaller AI companies. Let’s take a look at five of those investments and see if they could fit into your portfolio.
What are the 5 stocks that Nvidia has invested in?
In a 13F filing earlier this year, Nvidia disclosed investments in five companies as of Dec. 31, 2023. SoundHound AI (NASDAQ: SOUN), Arm Holdings (NASDAQ: ARM), Recursion Pharmaceuticals (NASDAQ: RXRX), Nano X-ray Imaging (NASDAQ: NNOX), and Two Simple HoldingsBelow you can see how much Nvidia invested in each company and how much each company’s stock price has risen or fallen since the disclosure.
company
Purchased shares
Market Value December 31, 2023
Market Value July 6, 2024
Profit (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-ray Imaging
59,632
$380,000
$410,000
8%
Too Simple Holdings*
3,465,372
$3.04 million
$870,000
(71%)
Data source: Nvidia. *TuSimple was delisted from Nasdaq in January 2024 and moved to the OTC market.
Some of these bets are more speculative than others.
SoundHound AI and Arm generated bigger gains than the other three stocks. SoundHound develops audio and voice recognition technology, and its Houndify platform is used to create customized voice tools for automakers. Hyundaismart TV manufacturers, etc. Visioand fast food chains like Church’s Chicken.
Arm designs power-efficient chips that are used in approximately 99% of the world’s premium smartphones. QualcommMediaTek, and apple Both have licensed Arm designs for their mobile chips, and Nvidia has also licensed Arm designs for its Tegra CPUs used in set-top boxes. Nintendo‘s Switch console, and car infotainment systems.
Nvidia has long been bullish on these two AI companies: It was one of the early investors in SoundHound when it was still a startup, and it was on the verge of acquiring Arm for $40 billion before the deal was halted by antitrust regulators in 2022.
Recursion, Nano-X and TuSimple are smaller, more speculative companies: Recursion uses AI algorithms to process drug discovery tests, Nano-X makes digital X-ray sources and is developing AI tools to identify undetected chronic diseases, and TuSimple is a Chinese self-driving truck company.
Which of these stocks are worth buying?
Of these five companies, Arm is the only one that is consistently profitable on a generally accepted accounting principles (GAAP) basis, so it’s easier to compare these five stocks using estimated earnings growth and enterprise value.
company
Sales (previous year)
Corporate value
EV/Sales ratio (current period)
Projected CAGR (next 2 years)
SoundHound AI
$45.9 million
$1.3 billion
20
50%
Arm Holdings
$3.2 billion
$185.1 billion
47
twenty three%
Recursion Pharmaceuticals
$44.6 million
$1.6 billion
27
19%
Nano X-ray Imaging
$9.9 million
$395.3 million
twenty five
130%
Two Simple Holdings
$300,000
$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 is probably the most reasonably valued given its growth potential, and Arm has a more stable business but its valuation has been inflated by the AI buying frenzy.
Recursion and Nano-X have promising technologies but have yet to scale up, while self-driving truck company TuSimple has found itself caught in the middle of the escalating technology war between the U.S. and China, voluntarily delisting from the Nasdaq earlier this year. This lack of name recognition, combined with the large losses and sky-high valuation, make it a hard stock to recommend.
Should they follow Nvidia’s lead?
These five stocks are all small investments for Nvidia, which had $7.59 billion in cash and cash equivalents at the end of its most recent quarter. The collapse of one of these companies wouldn’t worry the GPU giant too much, but growth-oriented investors should stick to the two most established names — Arm and SoundHound — and keep an eye on the more speculative ones for now.
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Sun in Leo The Motley Fool has invested in and recommends Apple, Nvidia, and Qualcomm. The Motley Fool recommends Nintendo. The Motley Fool Disclosure Policy.
The post Nvidia is buying shares in these 5 AI companies: Should you do the same? was originally published by The Motley Fool.
