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Nvidia Just Sold Its Entire Position in SoundHound AI. Should You Follow?

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Following the end of each quarter, institutional investors managing over $100 million are required to file a form 13F with the Securities and Exchange Commission (SEC). A 13F itemizes the individual stocks money managers bought and sold during the most recent quarter. Investors can use these filings as tools to uncover where the "smart money" is looking for opportunity.

While most investors probably think of the 13F as a requirement for banks and hedge funds, remember that non-financial institutions also make investments of their own.

For example, Nvidia currently owns stock in five different public companies -- Arm Holdings, Applied Digital, Recursion Pharmaceuticals, Nebius Group, and WeRide. Last quarter, however, Nvidia completely exited its position in voice recognition artificial intelligence (AI) stock SoundHound AI (NASDAQ: SOUN).

Should you follow Nvidia's decision to sell out of SoundHound AI? Read on to find out.

Looking at the bigger picture

When an investor decides to buy or sell a stock, it's reasonable to think such a decision supports how that investor actually feels about the company. While this logic is rational, it's not always the case.

Sometimes an investor will sell a stock simply because they've been holding onto the position for a long time and want to recoup their capital. Other times the investor might exit a position because, frankly, the stock was not inherently strategic to the overall composition to the portfolio to begin with.

In my opinion, Nvidia's decision to exit its stake in SoundHound AI sits somewhere between these two ideas.

The chart below illustrates the share price activity around SoundHound AI during the fourth quarter. Clearly, the stock experienced some outsize momentum -- as the share price rose nearly fivefold in just three months.

SOUN Chart
SOUN data by YCharts

My guess is that Nvidia recognized this momentum and decided to cash out. Considering Nvidia only had about 1.7 million shares of SoundHound AI, the company likely generated between $20 million or $30 million of proceeds at most (depending on when it sold). That's a minuscule amount of money for Nvidia, which is valued at more than $3.4 trillion.

An artificial intelligence panel on a car navigation screen.
Image source: Getty Images.

Looking at Nvidia's opportunities in the automotive industry

While SoundHound AI has made some impressive strides when it comes to revenue acceleration, the company is still burning a lot of cash. To me, voice recognition software for vehicles is indeed an important opportunity for Nvidia; however, I think the company has superior options compared to SoundHound AI.