Advances in the field of artificial intelligence (AI) over the past couple of years have come fast and furious. Arguably, one of the biggest beneficiaries of this trend is Nvidia (NASDAQ: NVDA). The company's graphics processing units (GPUs) have underpinned many of the advances in the field and have become the gold standard for AI. This has fueled unprecedented sales and profit growth for Nvidia, and every move the company makes is dissected by investors for insight into the future of the AI revolution.
Late last week, Nvidia filed its 13F report with the Securities and Exchange Commission (SEC), which details the changes to its investment portfolio in the most recent quarter -- in this case, the quarter ended Dec. 31.
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Nvidia made some significant changes, selling out of three AI stocks, trimming one position, and adding stakes in two others. Because the company has its finger on the pulse of AI, its decisions seem to carry a lot of weight with investors.
Let's take a look at the stocks in question and see what insight we can glean from Nvidia's moves.
Image source: Getty Images.
Three notable sales
Nvidia sold completely out of its position in SoundHound AI (NASDAQ: SOUN). The company is one of the leading providers of voice-enabled AI solutions in the smart television, automotive, Internet of Things (IoT), and customer service spaces. Its generative AI solutions have been expanding into a variety of industries, helping fuel its growth. Nvidia sold roughly 1.7 million shares worth more than $34 million.
In the third quarter, SoundHound AI's record revenue of $25 million grew 89% year over year, resulting in a loss per share of $0.06, an improvement from a $0.09 loss in the prior-year quarter. While those results are impressive, SoundHound AI stock had gained roughly 836% in the year since Nvidia initially reported its stake.
The resulting increase in its valuation has been equally eye-catching, and the stock closed out the year selling for 90 times sales, a stunning multiple for a company that's not yet profitable.
Nvidia also dumped its entire stake in Serve Robotics (NASDAQ: SERV), which describes itself as a "leading autonomous sidewalk delivery company" focusing on last-mile delivery. Serve Robotics has a fleet of delivery robots and has partnered with some of the market's biggest food delivery companies, but its growth has been extremely lumpy. Nvidia sold about 3.7 million shares worth $50 million.
In the third quarter, Serve Robotics generated revenue of $0.22 million, which grew 254% year over year, but decelerated from $0.51 million in Q2. Furthermore, the company's losses increased to $7.9 million. Nvidia's interest sparked a run on the stock, which gained 592% between June 30 and Dec. 31. This resulted in a commensurate increase in its valuation, as the stock was selling for 279 times sales, yet profitability was nowhere in sight.
The chipmaker also ditched its entire stake in Nano-X Imaging (NASDAQ: NNOX), a company that uses AI in conjunction with real-world medical imaging applications to provide advanced diagnostic capabilities and improve patient care. This was by far Nvidia's smallest stake, and it sold all 60,000 shares worth roughly $429,000.
In the third quarter, Nano-X delivered revenue of $3 million, which increased 22% year over year, while Nano-X's loss per share of $0.23 improved compared to a per-share loss of $0.37 in the prior-year quarter. Furthermore, the company's cash position declined from $82 million to $57 million as it continues to burn through its reserves.
Nano-X stock ended the year selling for 39 times sales, a steep price to pay for a company whose financial progress has been tepid at best.
One trimmed position
Nvidia also significantly reduced its stake in Arm Holdings (NASDAQ: ARM), which had long been its largest holding. The company provides the designs used in many of the world's most advanced semiconductors, generating royalties and licensing fees in the process. Nvidia sold off roughly 860,000 shares worth roughly $106 million. To be fair, it still has more than 1.1 million shares that were worth nearly $176 million (as of market close on Friday), so it's still Nvidia's largest stake by far.
In the third quarter, Arm generated revenue that grew 19% year over year to a record $983 million, driven by record royalty revenue and strong licensing. This fueled earnings per share (EPS) of $0.24, which tripled. Helping drive the results were the company's AI-centric version 9 cores, which offer greater computing power and generate twice the royalty rate of its predecessor.
While Arm is profitable and growing, the stock still carries a lofty valuation, selling for 209 times earnings and 46 times sales (as of this writing).
Two notable additions
The first of Nvidia's new holdings is Nebius Group (NASDAQ: NBIS). The company, previously known as Yandex Group, provided internet and search services in Russia. Trading of the stock was suspended in February 2022, shortly after the invasion of Ukraine. The company divested control of its Russian businesses and relocated to the Netherlands.
Nebius has pivoted and now offers cloud and AI services to a global customer base. The stock began trading on Oct. 20 and, soon thereafter, Nvidia purchased roughly 1.2 million shares worth roughly $33 million at the time of purchase.
It's also worth noting that Nvidia was part of a private placement of $700 million, which Nebius said will be used for additional capacity to support training and running AI models. The company previously announced plans to invest more than $1 billion to AI-centric infrastructure in Europe.
Comparisons are relatively meaningless, given the situation. That said, revenue of $43.3 million grew 766%, and its adjusted loss of $47 million improved by 45%, albeit from a small base. At the time of Nvidia's investment, the stock was selling for less than 1 times sales, which usually suggests an undervalued stock.
Nvidia's other new position is in WeRide (NASDAQ: WRD). The Chinese robotaxi and autonomous driving company went public in late October, shortly after announcing a strategic partnership with Uber to integrate its robotaxis onto Uber's platform. Shortly after its IPO, WeRide began deploying its fleet of robotaxis on the Uber app in the United Arab Emirates.
In the third quarter, WeRide generated revenue that declined 6% to $10 million, while its loss per share of $2.10 improved 31%. Because of its limited public operating history, there isn't much to go on, and it would be tough to assign a valuation. However, Nvidia must have liked what it saw, as it purchased more than 1.7 million shares in a stake worth nearly $25 million at the time of purchase.
What it all means
The common thread behind all of Nvidia's sales is relatively stretched valuations. It appears the company was simply reacting to what it likely viewed as lofty multiples and indulged in a bit of profit-taking. It's also possible Nvidia had reviewed the relative financial and operating performances of its investments and concluded that they simply weren't living up to their potential.
In hindsight, it's likely that Nvidia didn't know something that Wall Street doesn't, but was merely reacting to what it perceived as more compelling opportunities.
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Danny Vena has positions in Nvidia. The Motley Fool has positions in and recommends Nebius Group, Nvidia, Serve Robotics, and Uber Technologies. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
