This year's hottest AI deals may be shifting from "hard tech" to practical "application scenarios."

Judging from this year's market performance, North American AI application companies such as AppLovin Corporation(APP.US) and  Palantir Technologies(PLTR.US) have shown stronger signs of this trend. Data indicates that AppLovin Corporation(APP.US) has surged by 745% year-to-date, with its market value surpassing $100 billion. Palantir Technologies(PLTR.US) has also gained 290%, while AI chip giant NVIDIA Corporation(NVDA.US) is up 179% for the same period.

Goldman Sachs noted in a previous report that by 2025, investors are expected to shift from AI infrastructure to a broader "third stage" of AI application promotion and monetization.

Goldman Sachs categorizes the stages of AI development as follows:

1. Stage One: Beneficiaries of the most clear-cut AI advantages, represented by NVIDIA.
2. Stage Two: Companies focused on AI infrastructure.
3. Stage Three: Companies that have potential to generate incremental revenue and achieve AI monetization.
4. Stage Four: Companies that stand to gain the most from widespread AI adoption and productivity enhancements.

How to Invest in AI Application Stocks with NVIDIA?

As the leader in "AI technology," NVIDIA Corporation(NVDA.US) also participates in practical AI+ application scenarios through investments.

According to a 13F report, as of the close of trading on November 27, NVIDIA's top-performing Q3 holdings include  SoundHound AI(SOUN.US), its fifth-largest holding, with a cumulative increase of over 56%. The second-largest holding, Applied Digital(APLD.US), has risen over 40%, while the third-largest holding, RECURSION PHARMACEUTICALS, INC.(RXRX.US), has underperformed.

Moreover, these three AI+ application stocks, being small-cap, have resonated with the recent strong performance of the Russell 2000 Index

Breaking it Down:

1. SoundHound AI - AI Voice Assistant

SoundHound AI(SOUN.US)  provides an independent voice AI platform based on proprietary speech-to-meaning and deep understanding technology. The company previously announced that its ChatGPT-integrated voice assistant, SoundHound Chat AI, will be used in car models from Alfa Romeo and Citroën. Data shows that in-car voice assistant usage has surged six-fold, and net promoter scores have increased five-fold, demonstrating strong demand for highly intelligent, multifunctional AI voice assistants from drivers and manufacturers.

For Q3, SoundHound reported revenues of $25.1 million, surpassing the analyst expectation of $23.05 million. Adjusted loss per share was 6 cents, better than the expected loss of 7 cents.

SoundHound has also raised its full-year revenue forecasts for 2024 and 2025, expecting revenues of $82 million to $85 million in 2024 and $155 million to $175 million in 2025.

2. Applied Digital - AI + Data Center + Bitcoin "Shovel Seller"

Applied Digital(APLD.US)  is a data center and mining service provider covering three main businesses: AI cloud services, high-performance data center hosting, and encrypted data hosting.

The company is building one of the world's largest data centers, developing an additional 300MW data center capacity, and leveraging advanced technologies like closed-loop liquid cooling systems and idle power sources to improve efficiency. APLD, as NVIDIA's preferred cloud partner, offers GPU-as-a-service solutions focused on high-demand workloads for AI, machine learning, and rendering.

In a recent demonstration, the company reported three blockchain data centers to serve blockchain mining clients located in Texas and North Dakota. The company expects the data center hosting market to grow at a compound annual growth rate of approximately 7.25% from 2022 to 2028. APLD fits the mold of a typical shovel seller during the Bitcoin gold rush.

The company's latest results show continued strong growth, with Q1 fiscal 2025 revenue of $60.7 million, up 67% year-over-year, beating analyst expectations of $54.85 million. The loss per share was 15 cents, better than the expected loss of 29 cents.

3. Recursion Pharmaceuticals - AI Pharmaceutical Company

RECURSION PHARMACEUTICALS, INC.(RXRX.US)  is an AI-driven biopharma company creating maps of human biology, enhancing drug discovery, and reducing new drug development costs.

In September, the company merged with fellow "AI pharma" company Exscientia in a stock transaction valued at approximately $688 million, marking the largest acquisition in the AI pharma sector, according to Reuters.

Goldman Sachs noted that the merger aims to strengthen RXRX's AI/ML platform and pipeline, acquire EXAI's precise chemistry tools, and precision oncology pipeline. The merger has been approved by both company boards and is expected to close by November 20, with RXRX shareholders holding approximately 74% of the equity.

In terms of business development, RXRX has partnerships with several companies, including NVIDIA and Bayer, to access patient data, accelerate AI foundation model training, enhance drug discovery capabilities, and develop therapies for neuroscience and gastroenterological tumors. RXRX also aims to use collaborative data to build large-scale causal AI models and develop new tools and technologies to enhance its drug discovery and development capabilities.

For Q3, RXRX reported a loss per share of $0.34, with R&D and SG&A expenses totaling $110 million. The company's cash, cash equivalents, and investments totaled $427.6 million. Based on Q3 results, Goldman Sachs adjusted its 2024-2026 earnings per share estimates to -$1.52, -$1.70, and -$1.80.

What do you think of NVIDIA's three investments?