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.
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.
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.
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.
Nvidia’s “Magnificent Seven” cohorts Apple, Microsoft, Alphabet, and Amazon have all developed their own AI-powered voice assistants spanning various applications. Considering each of these companies is far more sophisticated and better capitalized compared to SoundHound AI, I think Nvidia has more potential should it decide to explore or deepen partnerships with its megacap peers in the area of voice recognition software more broadly.
On top of that, my personal feeling is that autonomous driving and vehicle design are the most lucrative opportunities for Nvidia when it comes to the intersection of automotives and AI. Nvidia is already working closely with Mercedes-Benz, Volvo, BYD, Nio, and many others as it pertains to their respective AI ambitions.
Knowing when to sell a stock is virtually impossible. Rather, an investor should make a decision to sell after weighing the pros and cons of continuing to hold onto a position.
Considering Nvidia actually invested in SoundHound AI during a private funding round in 2017, combined with the lack of strategic value SoundHound AI presents relative to other players in the AI automotive market or voice recognition space, it becomes more reasonable that Nvidia decided to exit its position.
Given its small size and lack of profitability, I see a position in SoundHound AI as quite speculative. If I were an investor in the stock, I would consider exiting or trimming my position. To me, SoundHound AI tends to exhibit the characteristics of a meme stock rather than a prudent investment.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, Nebius Group, and Nvidia. The Motley Fool recommends BYD Company and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Nvidia Just Sold Its Entire Position in SoundHound AI. Should You Follow? was originally published by The Motley Fool
