Nvidia (NVDA 0.12%) has added an eye-popping $2.3 trillion to its market capitalization since the beginning of 2023, thanks to soaring demand for its data center chips that are the best in the industry for powering and training artificial intelligence (AI).

Nvidia has put some of its incredible wealth to work by investing in a small portfolio of other AI stocks. SoundHound AI (SOUN -2.82%) was one of them, but the chip giant sold its entire stake during 2024's fourth quarter, according to its latest quarterly 13-F filing with the Securities and Exchange Commission.

SoundHound is a conversational AI specialist, and it's experiencing strong demand for its software from some of the largest brands in the world. But its stock lost its momentum after investors learned of Nvidia's exit, and it's currently down 60% from its record high.

SoundHound is scheduled to report its financial results for the first quarter on May 8. Could its dip represent a buying opportunity for investors ahead of the report?

A leader in conversational AI

Chatbots like OpenAI's ChatGPT were originally designed to interpret text-based prompts, whereas SoundHound has always focused on conversational AI, which parses voice-based prompts and responds in kind. Conversational AI is more practical for a range of uses in everyday life, which is why SoundHound AI's client list includes some of the world's biggest restaurant chains and car manufacturers.

Its technology is active in more than 10,000 quick-service restaurant locations from operators like Chipotle, Krispy Kreme, White Castle, and more. They use it to automate food ordering in-store, over the phone, and in the drive-thru lane, which reduces the number of employees those businesses require. Plus, SoundHound also offers a tool called Employee Assist that can give workers detailed instructions for making menu items or maintaining critical equipment.

Leading automotive manufacturers like Kia, Hyundai, and Stellantis (owner of the Chrysler, Jeep, and Dodge marques) are also using SoundHound's Chat AI in-car assistant. It can do various tasks from locating the nearest restaurant to explaining what a particular warning light means on the vehicle's dashboard -- and it's controlled entirely with voice prompts. Manufacturers can customize Chat AI with different voices and personalities to suit their brands.

SoundHound is now marrying its restaurant segment with its automotive segment with its new in-vehicle commerce platform. The software enables drivers to place food orders while they are on the move without picking up a phone. It plugs into the car's GPS navigation system to locate the most suitable vendors, so the driver can ask their in-car assistant to order them a meal from the nearest Chinese restaurant (for example).

In August, the company acquired AI developer Amelia, which is helping it break into new industries like healthcare, financial services, and insurance. In fact, SoundHound's largest customer accounted for just 14% of its total revenue in 2024, which was down from more than half in 2023. Having a more diversified revenue base can drive steadier growth and reduce risk in the long run.

Image source: Getty Images.

Soaring revenue, but steep losses

SoundHound AI generated $84.7 million in revenue during 2024, which was an 85% increase from the previous year. Management believes its growth could accelerate to a whopping 97% in 2025, as it's forecasting revenue of $167 million (at the midpoint of its guidance range). The company's first-quarter result could dictate whether or not management increases that guidance, so this is something investors should pay attention to on May 8.

The second metric to watch is SoundHound's order backlog. It stood at $1.2 billion at the end of 2024, which was an eye-popping 75% year-over-year increase. The company expects to convert that figure into actual revenue over the next six years, so it could be a great predictor of future results. If its backlog continues to grow at a rapid pace, it's reasonable to expect SoundHound's revenue growth to maintain its strong momentum.

However, SoundHound's rapid top-line expansion is coming at a steep cost. The company lost $350.7 million during 2024 on a GAAP (generally accepted accounting principles) basis, which was 295% more than its loss in 2023. Even after excluding one-off outlays and non-cash expenses like stock-based compensation, SoundHound still took a $69.1 million non-GAAP loss for the year.

With just $198 million in cash and equivalents on its balance sheet as of the end of 2024, SoundHound can't afford to keep losing money at that pace for long. The company might have to sacrifice some revenue growth to staunch the bottom-line bleeding. Otherwise, shareholders are likely to face significant dilution through further secondary stock offerings.

A high valuation could limit its upside

Despite its 60% decline from its all-time high, the stock is still expensive. It trades at a price-to-sales (P/S) ratio of 38.1, which is nearly twice the P/S ratio of Nvidia. That doesn't make much sense, considering Nvidia is arguably the highest-quality AI company in the world.

SOUN PS Ratio data by YCharts.

SoundHound AI stock looks a little cheaper valued based on its expected future revenue. For example, assuming the company will generate $167 million in revenue this year as management expects, its forward P/S ratio would be 22.7 -- but that's still a premium valuation, especially considering the risks associated with its steep losses.

Nvidia never disclosed why it sold its stake in SoundHound, so it's impossible to know whether valuation played a role. Nvidia only held 1.73 million shares, which would be worth around $16.5 million at the current price, so even a complete loss wouldn't have affected the $2.7 trillion chip giant's finances meaningfully.

However, Nvidia's absence on the share register certainly took some of the shine off the bull case for SoundHound stock. Plus, given its valuation, SoundHound doesn't look like a great buy at the current price, even if you think the upcoming financial report will be a total blockbuster. Therefore, it might be better to wait for a further pullback before investing in this story.