As we approach 2025, the artificial intelligence (AI) sector continues to capture investor interest, with Palantir Technologies (PLTR) and SoundHound AI (SOUN) standing out as two of the most dynamic players. Both companies have experienced unprecedented stock performance in 2024, with Palantir achieving a 360% increase and SoundHound AI an astonishing 1,029% rise. However, with such significant gains, the question arises: are these stocks still worth investing in?
Palantir Technologies and SoundHound AI both leverage AI but serve different market segments. Palantir focuses on enterprise AI, offering platforms like Palantir Foundry and the Palantir Artificial Intelligence Platform (AIP) to integrate AI into operational systems for real-time decision-making. This includes applications in diverse fields from public health to defense strategies. Their client base spans government and commercial sectors, emphasizing their role in solving complex data problems across different industries.
On the other hand, SoundHound AI has carved a niche in audio-based AI applications. Their technology, which excels in voice recognition and natural language processing, is integral in sectors like automotive, where voice assistants in vehicles are becoming standard, and in fast-food for automated ordering systems. In fact, SoundHound’s voice AI solutions are currently deployed in more than 10,000 restaurant locations. Additionally, their strategic partnership with companies like Nvidia (NVDA) not only amplifies their technological capabilities but also their market reach, particularly in enhancing voice and audio interactions in various devices.
Financially, comparing these two companies reveals compelling insights. Palantir, as a more established player, reported robust revenue growth of 30% year-over-year (y/y) and 7% quarter-over-quarter (q/q), reaching $726 million in Q3, with a solid GAAP net income of $144 million, representing a 20% profit margin. U.S. revenue surged 44% y/y and 14% q/y to $499 million, driven by strong performance across segments. U.S. commercial revenue increased 54% y/y and 13% q/q to $179 million, while U.S. government revenue rose 40% y/y and 15% q/q, totaling $320 million. Wall Street analysts, including those at UBS, project Palantir’s revenue to grow by 28% in 2025 and 25% in 2026, while SoundHound AI is expected to achieve an impressive 96% revenue increase.
SoundHound AI, while significantly smaller in scale, has showcased remarkable growth, with third-quarter revenue surging 89% to $25.1 million. Its non-GAAP net loss per share improved to ($0.04) from ($0.06) a year ago, though its net profit margin as of September 30, 2024, stands at (163.58%). Looking ahead, Palantir has raised its full-year 2024 revenue guidance to a range of $2.805 billion to $2.809 billion, up from its prior range of $2.742 billion to $2.750 billion. Meanwhile, SoundHound AI projects full-year 2024 revenue between $82 million and $85 million, with an ambitious outlook for 2025, targeting $155 million to $175 million—underscoring its potential for rapid expansion.
However, the valuation of these stocks poses a significant challenge. Both companies trade at very high multiples — 72 times sales for Palantir and 109 times for SoundHound AI. Such valuations reflect immense optimism or, potentially, market hype. For Palantir, achieving a more reasonable valuation would require maintaining high growth rates over several years, which seems challenging given the expected slowdown in growth. SoundHound AI, with its faster growth trajectory, could see its price-to-sales ratio decrease more rapidly, potentially aligning with more typical software valuations if it continues to double revenue annually.
The decision to invest in either company at their current valuations involves assessing whether the growth prospects justify the price. Palantir, with its established business model and profitability, offers stability but less explosive growth potential. SoundHound AI, while riskier due to its current unprofitability, could provide higher returns if it successfully matures its business model and expands its market presence.
In conclusion, while both companies are at the forefront of AI innovation, the investment choice hinges on one’s risk tolerance and belief in their respective growth stories. If one is betting on rapid growth to normalize valuation, SoundHound AI might present an intriguing opportunity despite its current financials. Conversely, Palantir’s more predictable growth and profitability might appeal to those seeking a safer bet in the AI sector. However, for both stocks, the high valuations mean that any further price appreciation would likely depend more on meeting or exceeding these lofty expectations than on current business performance.
Price Action: Shares of Palantir closed Friday’s session down 3.73% at $79.08, and dipped another 0.35% to $78.80 in after-hours trading. Meanwhile, shares of SoundHound AI closed Friday 1.16% lower at $23.95, and fell an additional 0.13% to $23.92 in after-hours trading.
Disclaimer: The information provided is for informational purposes only and does not constitute financial, investment, or trading advice. Trading stocks/cryptos involves significant risk, and past performance is not indicative of future results. Always conduct your own research and consult with a qualified financial advisor before making any investment decisions.
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