Comparing Top AI Stocks: Palantir Technologies vs. SoundHound AI

As we look forward to 2025, two standout names in the artificial intelligence (AI) stock arena are Palantir Technologies (PLTR) and SoundHound AI (SOUN). Both stocks experienced remarkable performance in 2024, with Palantir rising nearly 400% and SoundHound AI impressively soaring by about 900%.

Such extraordinary returns are a dream for investors. However, after significant price increases, it's worth asking: are these stocks still a good buy now?

Leading the Charge in AI

While both firms thrive in the AI sector, they target different markets.

Palantir specializes in creating tailored AI applications that empower clients to make informed decisions with the latest data. Additionally, Palantir offers tools that integrate generative AI seamlessly into business operations, rather than as a supplemental tool. Although Palantir primarily serves government agencies, its commercial clientele has quickly embraced the evolving AI landscape. This dual focus could drive sustainable growth for Palantir as AI continues to advance.

On the other hand, SoundHound AI focuses on harnessing audio input for its AI solutions. This technology offers a vast array of potential applications, leading SoundHound AI to collaborate with major players like Nvidia to incorporate its advanced tech into diverse products. SoundHound AI's software has primarily served industries such as restaurants and automobile manufacturing, though it is gaining traction in finance and healthcare as well.

Both companies present compelling business models. But how do their financials compare?

Growth Rates Tell the Story

When examining their finances, Palantir and SoundHound AI stand on different grounds. Palantir is larger and has achieved profitability, but this comes with slower growth rates, which is common for larger companies. In contrast, SoundHound AI, being smaller and less profitable, is growing rapidly.

In the third quarter, Palantir reported a robust revenue increase of 30% year over year, reaching $725 million, while SoundHound AI's revenue surged by 89%, totaling $25 million. Palantir enjoys a strong profit margin of 20%, whereas SoundHound AI is operating at a significant negative margin of 87%.

Despite these differing financial health indicators, the focus shifts to future growth as we evaluate 2025. Analysts expect Palantir's revenue to grow by 24% next year, while SoundHound AI could see a staggering 96% increase in revenue.

This stark contrast signals that SoundHound AI is in the early stages of substantial growth, whereas Palantir's expansion may slow down. SoundHound AI is not anticipated to achieve actual profitability in 2025, but management aims for adjusted profitability by the end of that year, which would indicate progress.

The analysis may not yield a clear winner, but one critical aspect remains to be evaluated: stock valuation.

Examining Valuations

Both stocks have undergone significant increases in value in 2024, yet their revenue and profits haven't climbed at the same pace, causing their valuation ratios to leap.

Currently, SoundHound AI trades at 92 times its sales, while Palantir is valued at 75 times sales — placing both among the priciest stocks in the market.

Typically, such high multiples for earnings would be considered expensive, yet both companies are trading at these elevated levels without factoring in any expenses.

This raises the question: do these high valuations make sense?

Palantir, being a more established company, is likely aiming for profit margins of around 30% and may trade at approximately 40 times trailing earnings. However, if Palantir maintains its growth at 30% (with predictions of a decline to 24% next year), it might take close to six years to reach that valuation if the stock price remains flat. That sets a high bar which Palantir may struggle to achieve.

Meanwhile, SoundHound AI's trajectory looks different. If it continues to double its revenues over the next three years, its price-to-sales ratio could decrease to about 11.5 by 2027, aligning it more closely with a standard software company valuation.

Clearly, both companies carry significant expectations reflected in their stock prices. Any future price growth is likely to rely more on market sentiment rather than concrete business outcomes. Nevertheless, if pressed to choose one stock, SoundHound AI may be preferable, given its rapid growth potential that could more swiftly normalize its valuation multiples.

Invest wisely and consider the unique prospects both companies offer in the evolving AI market.

AI, Investing, Stocks