Could Nvidia Become SoundHound AI's Biggest Competitor?

Voice artificial intelligence (AI) company SoundHound AI (NASDAQ: SOUN) got a big boost to its share price early last year after chipmaker Nvidia (NASDAQ: NVDA) disclosed that it had a small position in it. As 2024 progressed, additional good news about the business pushed its share price higher. But early this year, AI sector headwinds, competitive threats, and a tepid showing at CES set the stock on a downslope.

Then in late February, when Nvidia filed its latest 13F with the SEC, investors learned that it had sold off its entire stake in SoundHound AI in the fourth quarter. Shares plunged further.

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Even more concerning, Nvidia recently locked up a deal with its first restaurant company. Not only is the GPU leader no longer a key backer of SoundHound AI, it may also potentially become the smaller company's biggest competitor.

Nvidia to work with Yum! Brands

On March 18, Yum! Brands announced that it would be working with chip giant Nvidia in what it called an "industry-first collaboration" with the tech company. Yum! Brands owns the KFC, Taco Bell, and Pizza Hut chains, giving it a massive footprint with more than 61,000 restaurant locations throughout the world.

The company is going to use AI to help assess the performance of its restaurants and is deploying voice AI systems to handle orders at drive-thrus, which is one of the areas that SoundHound has also been eyeing as a big growth opportunity. In December, SoundHound announced deals for its voice AI ordering platform with Church's Texas Chicken and Torchy's Tacos.

Nvidia's deal with Yum! Brands marks the first time the tech giant partnered with a restaurant company on AI, and it could just be the start.

Why SoundHound's growth prospects are questionable

For SoundHound, the big question was always about how much growth it could truly achieve. The competitive threat from Nvidia is far from the only concern on that front, as other companies also offer similar voice AI services. But because of Nvidia's massive scale, it could take significant market share in voice AI. It's also in a financial position to push hard into fresh markets: It generated $73 billion in profit over the past four quarters. By contrast, SoundHound is nowhere near breaking even -- it incurred a loss of more than $351 million last year.

While SoundHound doubled its revenue during the last three months of 2024, that was with the help of an acquisition. For it to grow organically at a high rate won't be easy. There's loads of competition out there in its niche, and with a behemoth like Nvidia potentially en route to becoming a huge rival, investors may want to think twice about just how highly they are valuing the stock.

SoundHound's stock is in trouble

SoundHound stock is down nearly 50% in 2025. But with a market cap of around $4 billion, SoundHound is still trading at a high valuation with respect to its top and bottom lines.

It isn't profitable, and investors are paying a price-to-sales multiple of nearly 40, based on last year's sales. Even if the company hits the high end of its revenue guidance range for this year ($177 million), it's still trading at 23 times forward sales. That's a high multiple to pay for a tech company that is facing a lot of risk and uncertainty ahead.

Now may be a good time for shareholders in SoundHound to reconsider their positions. While the stock has already retreated far from the peak it touched a few months ago, its free fall may not be over just yet. There are much better AI stocks to own than SoundHound -- simply going with Nvidia may be a better option. Although it may be tempting to go with a much smaller company in SoundHound that may possess a lot more upside in the long run, doing so also comes with far greater risk.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.