Looking for a profitable investment in artificial intelligence (AI)? Consider this AI stock that Nvidia is investing in.

Hitting an investing home run can be very satisfying because the returns can be incredible. But with home runs come strikeouts, and when you’re an all-or-nothing investor, strikeouts are much more common than home runs. Still, if the overall returns outweigh the massive losses, it can be a compelling investment strategy for those with the right stamina.

These days, some investors might be looking for artificial intelligence (AI) stocks with that potential for success, and I think I’ve identified one. AI SoundHound (HER -1.51%) has the assets for a potential home investment and is also supported by Nvidia (NASDAQ: NVDA). There is no better partner in the AI ​​field.

Let’s see what might make SoundHound a top choice for those battling for the fences.

Its audio recognition technology thrives in two areas

SoundHound AI integrates artificial intelligence with audio recognition. While this approach has multiple applications, the two areas where SoundHound has had the most impact are restaurants and automotive. For restaurants, SoundHound automates drive-thru windows and takes phone orders. Margins in the restaurant industry are notoriously thin, so if a restaurant can reduce staffing by using AI at a lower cost, they will.

SoundHound’s audio recognition technology is being integrated into digital assistants in the automotive industry. Hands-free technology has been around for over a decade, but it’s a clunky technology that doesn’t always work properly. SoundHound is fixing this problem and integrating generative AI technology into its product using ChatGPT.

However, this requires internet connectivity to work properly, so Nvidia and SoundHound have teamed up to integrate a large language model onto an integrated GPU that allows this model to work regardless of where the vehicle is located .

Overall, SoundHound offers an excellent value proposition to customers. However, there are some concerns about the company’s financial situation.

SoundHound is burning a lot of cash

In the first quarter, SoundHound’s revenue increased 73% year over year to $11.6 million. While that’s an impressive overall number, $11.6 million isn’t a lot of revenue compared to most companies.

The problem with SoundHound’s finances is its burn rate, as the company is very unprofitable. Even though it generated $11.6 million in revenue, it posted an operating loss of $28.5 million, meaning it is spending about 4 times more money than it takes in. won. It’s an untenable model, but that’s to be expected for a company that is only in the early stages of rolling out its products.

SoundHound’s saving grace is its massive backlog. That statistic sums up all future bookings, which is no guarantee of revenue. But it does give a glimpse of potential demand. If SoundHound converts its $682 million backlog into actual revenue, it will have had a huge success.

With such a large backlog, SoundHound should have no problem raising additional funds by issuing shares on the public market, allowing it to continue its unprofitable ways.

But does all this add up to a stock worth exploring? While the stock was trading at a much higher valuation during the initial AI hype cycle earlier this year, 20 times sales is still expensive for the stock of a company that still has a lot of work to do before it’s viable.

PS SOUN Ratio data by YCharts

I still think there’s enough investment here to take a chance on SoundHound, but anyone buying the stock should be prepared to see their investment go to zero. If you have this ability, then this is a move worth considering, as it has a lot of potential. But remember to keep the position size very small, as a total loss is a possibility.

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