By Medha Singh
(Reuters) -Shares of smaller AI firms rallied on Thursday after the world's most dominant artificial intelligence chipmaker, Nvidia (NASDAQ:NVDA), disclosed stake in them, offering clues on its growth strategy.
The rally showed Nvidia's growing influence in the AI world as its market value grows at a scorching pace, making it the third most-valuable U.S. company.
Its largest investment of $147.3 million was in Arm Holdings (NASDAQ:ARM), the chip designer that Nvidia failed to buy after the $80 billion deal hit the antitrust hurdle two years ago.
Nvidia had last year indicated interest in purchasing shares of Arm during the British company's Nasdaq debut. Shares of Arm, which have surged more than 60% over the last week after a strong forecast, dipped nearly 0.5% on Thursday.
Nvidia disclosed its stakes as of Dec. 31 in a 13F filing late on Wednesday. The regulatory disclosure is closely watched by investors and is generally associated with moves made by fund managers rather than public companies.
Insider Intelligence analyst Gadjo Sevilla said Nvidia's involvement in a broad range of companies could help it make more affordable but hyper-focused chipsets rather than expensive general-purpose AI chips.
Shares of biotech firm Recursion Pharmaceuticals, in which Nvidia invested nearly $76 million, gained 5%. Last year, Nvidia had said it would invest in it to speed up training of the Utah-based firm's AI models for drug discovery.
The Silicon Valley megacap firm also invested nearly $3.7 million in conversational voice assistants developer SoundHound AI (NASDAQ:SOUN), sending its shares 50% higher to $3.33.
Nvidia also bought stake in Israel-based medical device company Nano-X Imaging, which uses AI software to analyze reports. Nano-X shares rose 52% higher.
Autonomous driving technology TuSimple Holdings, which delisted from the Nasdaq last week, drew $3 million in capital from the chipmaker.
"An Nvidia investment is taken as a strong positive by investors and should aid those companies that need to raise capital," said Rick Meckler, partner at Cherry Lane Investments, a family investment office.
He said its investments indicate a portfolio approach where one could expect both winners and losers.
SoundHound shares were the most actively traded across U.S. exchanges, with 160 million shares changing hands by 11:30 a.m. ET, according to LSEG data.
Retail traders too jumped into the race. SoundHound and Nano-X Imaging were among the top five most actively traded stocks by individual investors, J.P.Morgan data showed.
Shares of other micro-cap AI firms rose in tandem, with Guardforce AI adding 11% and BigBear.ai Holdings gaining 10.3%.
Several well-known funds, including Rokos Capital Management and Bridgewater Associates, have also invested in the chipmaker toward the end of 2023, Nvidia's regulatory filing showed.