Nvidia Recently Divests from Its Entire SoundHound AI Stake. Is It Worth Emulating?
After every quarter, investments managing over $100 million are obligated to file a 13F with the Securities and Exchange Commission (SEC). This form includes the stocks an investor purchased or sold during the last quarter, providing a window into where the "smart money" sees potential opportunities. While many may associate 13F filings with banks and hedge funds, it's important to remember that non-financial institutions also invest in their own right.
For instance, Nvidia, a tech powerhouse, currently holds shares in five companies: Arm Holdings, Applied Digital, Recursion Pharmaceuticals, Nebius Group, and WeRide. Interestingly, during the last quarter, Nvidia divested from its position in SoundHound AI, a voice recognition AI company (SOUN -5.50%).
But why did Nvidia choose to sell? Let's delve deeper.
Observing the broader context
Investors often believe that buying or selling a stock mirrors their sentiment towards the company. However, reality isn't always that straightforward.
Sometimes, investors offload a stock because they've held onto it for a long time and wish to recoup their capital. On other occasions, the investor may exit a position because the stock wasn't integral to the portfolio's composition to begin with.
In my opinion, Nvidia's exit from SoundHound AI falls somewhere in between these two scenarios.
Analyzing the share price activity of SoundHound AI during the fourth quarter, it's clear that the stock experienced a substantial surge. The price climbed nearly fivefold in mere months.
I speculate that Nvidia, having around 1.7 million shares of SoundHound AI, chose to capitalize on this momentum, potentially earning between $20 million and $30 million in proceeds. Given Nvidia's over $3.4 trillion valuation, this was a relatively small amount.
Focusing on Nvidia's prospects in the automotive industry
SoundHound AI has demonstrated promising revenue growth. However, it continues to burn through cash, which raises concerns about its long-term financial viability.
Regardless, the voice recognition software market for vehicles is a promising area for Nvidia. Yet, I believe the company could find better opportunities than SoundHound AI.
Nvidia's "Magnificent Seven," including giants like Apple, Microsoft, Alphabet, and Amazon, have all developed AI-powered voice assistants. Considering the immense resources and expertise these companies possess, partnering with them might be a more promising route for Nvidia.
Moreover, autonomous driving and vehicle design hold the greatest potential for Nvidia in the automotive AI space. Nvidia has already formed partnerships with notable automakers to further its ambitions in this area.
Considering whether to sell SoundHound AI stocks
Determining the optimal time to sell a stock is a challenge. Instead, investors should evaluate the pros and cons of holding onto a position.
Given that Nvidia invested in SoundHound AI several years ago and considering the limited strategic value SoundHound AI provides within the AI automotive market or voice recognition sector, it's more plausible that Nvidia decided to divest itself.
As a small, unprofitable company, a position in SoundHound AI could be considered a gamble. If you're an investor, you might consider exiting or reducing your stake. In my view, SoundHound AI seems more like a meme stock than a sound investment choice.
- Despite being a non-financial institution, tech giant Nvidia regularly files 13F reports, revealing its investments in companies like Nebius Group.
- The surge in SoundHound AI's share price during the last quarter probably led Nvidia to sell its position, potentially earning between $20 million and $30 million.
- Analyzing Nebius Group's investment portfolio, one might find sound investment opportunities, as they too have sold their shares in SoundHound AI, a company that continues to burn through cash.
- For investors considering the SoundHound AI stock, it might be wise to reconsider their position due to the company's financial instability and limited strategic value, making it more like a meme stock.
