Nvidia (NVDA 0.54%) is currently experiencing an astonishing surge in demand for its graphics processing units (GPUs). These chips serve a diverse range of sectors including gaming, data centers, automotive, and artificial intelligence (AI) research. This heightened demand is not only generating substantial excess revenue for Nvidia but also presenting the company with opportunities to utilize these funds effectively. One such approach is by making strategic investments in companies that facilitate the wider adoption of its products.
Unlock the Potential with Nvidia's Strategic Bets
SoundHound AI
SoundHound AI is a relatively small enterprise with a market capitalization of approximately $2.3 billion at the present time. Over the past few years, its stock price has experienced significant fluctuations. However, in the last 12 months alone, the share price has nearly tripled.The demand for the company's AI-enabled voice technology remains robust. In the third quarter, revenue witnessed a remarkable 89% year-on-year growth, partly driven by the additional revenue from the acquisition of Amelia, an enterprise AI software company. This acquisition has enabled SoundHound to expand its technology into more markets beyond auto and restaurants. Nevertheless, the core markets continue to serve as a powerful driving force for the business.Earlier this year, SoundHound and Nvidia collaborated to provide voice AI assistance through Nvidia's DRIVE platform. Additionally, SoundHound is making significant inroads in the electric car market, with Stellantis utilizing SoundHound Chat AI across seven of its car brands. The management is now focused on expanding its technology to financial services, healthcare, and retail companies.The future appears highly promising for SoundHound. The next crucial step is to demonstrate to investors that it can achieve profitable growth. In the third quarter, the company reported an adjusted net loss of $15 million, which remained unchanged from the second quarter. However, management anticipates a profit on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis by the end of 2025.If SoundHound continues to gain wider adoption across multiple markets and achieves profitability in the next year or so, investors are likely to reap substantial returns in the coming years.Applied Digital
Nvidia is witnessing explosive demand for its GPUs, especially from data centers. Applied Digital, a relatively small business, is reaping the benefits of this trend. At the time of writing, it has a market capitalization of just $1.8 billion, and its stock has surged by 112% over the past year.Applied Digital specializes in building data centers for AI, cloud services, and cryptocurrency mining. In the last quarter, revenue grew by 67% year-on-year, and there is a notable increase in interest from large customers for 2025 and 2026.As a smaller business, Applied Digital has limited resources. In the last quarter, it reported an adjusted net loss of $4 million. However, Nvidia's recent investment plays a crucial role in shaping Applied Digital's growth prospects. The investment from Nvidia and other accredited investors has strengthened the company's finances, providing the necessary funds to invest in high-return projects and drive further growth. For Nvidia, this investment contributes to the expansion of more data centers, ultimately leading to increased sales of its GPUs.Applied Digital aims to become a leader in operating multiple high-performance data centers. In its recent earnings report, it announced the finalization of a lease agreement with a U.S.-based customer for a state-of-the-art, 369,000-square-foot facility capable of handling AI workloads.The cloud service business also holds great potential. It accounted for nearly half of the company's revenue in the last quarter. This business enables companies to access the computing power required for AI applications and is continuously exploring new growth opportunities.In the quarter, the company reported a profit of $20 million on an adjusted EBITDA basis. Based on the current fiscal year's consensus EBITDA estimate on Wall Street, the stock is currently trading at an enterprise value-to-EBITDA ratio of 21. This valuation is reasonable for a fast-growing technology company. Assuming Applied Digital continues to show improving profitability, the stock has the potential to deliver excellent returns in the coming years.