Comparing AI Stocks: Palantir Technologies vs. SoundHound AI

As we move towards 2025, two standout stocks in the artificial intelligence (AI) sector are Palantir Technologies (PLTR) and SoundHound AI (SOUN). Both companies had an incredible year in 2024, with Palantir’s shares soaring by nearly 400% and SoundHound AI’s stock skyrocketing by approximately 900%.

This kind of performance is almost unheard of, and any investor would be thrilled to see such returns. However, after such a dramatic increase, the question remains: are these stocks still worth investing in right now?

Diverse Approaches to AI

Though both companies operate within the AI landscape, they serve different markets and purposes. Palantir focuses on creating AI applications tailored to aid its clients in making well-informed decisions based on the latest information.

Moreover, Palantir provides tools that facilitate the integration of generative AI into businesses rather than using it as a mere supplementary tool. Although Palantir primarily serves government agencies, its commercial business has been quick to adopt the latest advancements in AI technology. This dual focus on both government and commercial sectors positions Palantir well to continue benefiting from the ongoing AI revolution.

In contrast, SoundHound AI is centered around leveraging audio input for AI applications. With diverse applications across various industries, SoundHound AI has partnered with major players in the tech world, including Nvidia, to enhance its technology through collaboration. The implementation of SoundHound AI’s solutions has seen success primarily in the restaurant and automotive sectors, with recent forays into finance and healthcare.

Analyzing Financial Performance

When comparing the financials of Palantir and SoundHound AI, a number of differences emerge. Palantir is larger and more established, showing consistent profitability despite slower growth rates typical of bigger companies. SoundHound AI, on the other hand, is a smaller and rapidly growing entity.

In the third quarter, both companies reported impressive growth, with Palantir’s revenue climbing 30% year-over-year to $725 million, while SoundHound AI experienced an extraordinary 89% increase to reach $25 million. Despite Palantir's robust 20% profit margin, SoundHound AI reported a challenging -87% margin.

While these figures may lead investors to lean towards Palantir, the outlook for 2025 could shift, as analysts anticipate Palantir's revenue growth to slow to 24%, whereas SoundHound AI’s revenue is projected to soar by 96%.

This stark contrast indicates that SoundHound AI’s growth trajectory is just beginning, while Palantir’s growth could be peaking. On the profitability front, SoundHound AI may not yield traditional profits in 2025, but the management has expressed intentions to achieve adjusted EBITDA profitability by that time—a positive sign for future growth.

Valuations of Both Companies

Another important aspect of this comparison is valuation. Both stocks have experienced tremendous increases in price throughout 2024, yet their revenue or profits have not risen proportionately. This discrepancy stemmed from skyrocketing valuation ratios.

At present, SoundHound AI trades at approximately 92 times its sales, while Palantir stands at around 75 times its sales, making them some of the priciest stocks in the market.

Typically, valuation ratios of 92 or 75 times earnings indicate an expensive stock; however, these figures are based on sales and not accounting for expenses.

Does this justify the current valuations? Palantir, being more established, is expected to target a profit margin of around 30%. If it continues to grow at its current rate of 30%, it would take nearly six years to reach its valuation with no stock price fluctuations—a significant expectation for the company.

In contrast, SoundHound AI's rapid revenue doubling could see its price-to-sales ratio normalizing to about 11.5 by 2027, which would align it with typical software company valuations.

Clearly, both stocks carry considerable expectations, meaning that future price growth will heavily depend on market speculation as opposed to actual business performance. If a selection is to be made, SoundHound AI may be the more appealing option due to its aggressive growth potential, which could help reduce its valuation multiples in a manner favorable to shareholders.

Stocks, AI, Investing