AI Stock Showdown: Nvidia vs. SoundHound | Which one is better?

Both SoundHound (NASDAQ: SOUN) and Nvidia (NASDAQ: NVDA) are prominent players in the AI industry. Nvidia is renowned for producing the chips essential for AI advancement, while SoundHound has developed a proprietary AI platform poised to revolutionize industries ranging from automotive to retail.

Investors keen on capitalizing on AI might consider diversifying their portfolios with both companies. However, key differences between the two should inform investment strategies.

Maximizing Growth Potential

For those seeking maximum growth potential, SoundHound stands out. With a market capitalization of approximately $1.3 billion, SoundHound's stock is more likely to experience a significant rise compared to Nvidia, whose valuation nears $3 trillion. To achieve a 1,000% increase, Nvidia would need to add more value than tech giants like Microsoft, Meta Platforms, Apple, and Amazon combined. In contrast, SoundHound would only need to grow by 0.3% of Nvidia's current value.

SoundHound's relatively small size provides substantial upside potential. The company's core technology focuses on sound and voice recognition, coupled with natural language understanding. This enables AI-driven interactions such as ordering food via AI-powered drive-throughs, consulting with vehicles about maintenance, or selecting music and television content. SoundHound has secured contracts across various industries, with a backlog valued at nearly $700 million, up from around $330 million a year ago.

Despite its potential, SoundHound's stock is not without risk. It trades at a high 19 times sales, yet its revenue growth has averaged approximately 60% annually. If double-digit growth continues for the next decade, today's premium valuation could seem justified. Emerging tech companies often exhibit short-term volatility, but long-term investors seeking growth may find SoundHound appealing.

Going All-In on Artificial Intelligence

Nvidia, already a dominant force in AI, has little to prove. The company's rapid ascent has established it as the largest AI stock globally, with a significant portion of its revenue driven by AI growth.

"In fiscal 2022, Nvidia generated 46% of its revenue from gaming GPUs, 39% from data center GPUs, and the remainder from professional visualization, automotive, and OEM chips," notes Leo Sun, a fellow contributor to The Motley Fool. This landscape has shifted dramatically. In the first fiscal quarter of 2025, Nvidia's data center chips accounted for 87% of its revenue, with gaming and other segments making up the rest.Nvidia generated $22.6 billion in data center revenue in a single quarter, compared to nearly $27 billion in total revenue for fiscal 2023," observes Sun. This rapid expansion has transformed Nvidia from a diversified GPU manufacturer into a primary player in AI chips.

However, this focused approach carries risks. Nvidia's valuation has surged from around 10 times sales to nearly 40 times sales over the past five years. While the company's revenue growth—262% year-over-year in Q1 FY 2025—has justified this increase, its stock price now hinges on continued substantial AI spending and maintaining market dominance.

Historically, chip industry leaders have fluctuated, with companies like AMD and Intel experiencing both highs and lows. Nvidia's next-generation Blackwell chip is poised to counter advancements from competitors such as AMD's MI300 Instinct GPUs and Intel's Gaudi 3 AI accelerators.

Nvidia remains a strong investment for those bullish on AI, but investors should also consider emerging companies like SoundHound for potentially higher returns.

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Disclaimer: The information provided in this article is for informational purposes only and should not be considered financial advice. Investors should conduct their own research and consult with a financial advisor before making investment decision