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 (NASDAQ: SOUN) has the elements for a potential successful investment and is also backed by Nvidia (NASDAQ: NVDA)There is no better partner in AI.

Let’s see what might make SoundHound a top choice for those who want to fight for the barriers.

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 an internet connection to work properly, which is why Nvidia and SoundHound have teamed up to integrate a large language model onto an onboard GPU that allows this model to work regardless of where the vehicle is located.

Overall, SoundHound offers a great value proposition to customers. However, some are concerned 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 number, $11.6 million isn’t a high revenue figure compared to most companies.

The problem with SoundHound’s financials 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’s spending about 4 times more money than it’s making. It’s an unsustainable model, but that’s to be expected for a company that’s still in the early stages of rolling out its products.

SoundHound’s bright spot is its massive backlog. This metric sums up all the bookings it has coming in, which is no guarantee of revenue. But it does give an idea of ​​potential demand. If SoundHound converts its $682 million backlog into actual revenue, it will have had a massive success.

With such a large order book, SoundHound should have no difficulty raising additional funds by issuing shares in the public market, which would allow it to maintain its unprofitable habits.

But does all this make it a stock worth considering? While the stock traded at a much higher valuation during the initial AI hype cycle earlier this year, 20 times sales is still expensive for a company that still has a lot of work to do before it becomes viable.

PS SOUN Ratio data by YCharts

I still think there is 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 that ability, then this is a stock 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.

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