Is There a Better AI Stock Than Palantir?

Palantir (NASDAQ: PLTR) has gained significant attention on Wall Street, soaring over 300% in 2024, making it a top-performing stock in the market. As a result, many investors are questioning whether it is the best AI stock to invest in today. However, there may be a more appealing AI company positioned for growth, which warrants consideration.

SoundHound AI (NASDAQ: SOUN) has emerged as a contender, often discussed as a potential millionaire-maker in the AI sector. But how does it stack up against Palantir? Let’s explore further.

SoundHound AI: A Better Chance for Significant Returns

For either company to turn an initial investment of $10,000 into a million dollars, substantial growth is essential. Palantir would need to increase its value 100-fold, which would elevate its market capitalization to a staggering $15.9 trillion. In comparison, the world's largest company, Apple, is currently valued at around $3.67 trillion. On the other hand, SoundHound AI would require a market cap of $375 billion to achieve the same result.

When comparing these investments, the focus should be on their growth potential relative to the overall market. Which stock is likely to accelerate the investor's journey to wealth more effectively?

Both Palantir and SoundHound AI are heavily invested in artificial intelligence. Palantir develops tailored software applications for businesses, enabling decision-makers to access the latest information through AI. The company is also focused on integrating generative AI into its workflows, ensuring AI is part of everyday operations rather than an auxiliary tool.

In contrast, SoundHound specializes in AI that processes audio data, enabling industries such as automotive, restaurant, and finance to automate various tasks historically managed by humans. Although still smaller than Palantir, SoundHound is in the early stages of rolling out its technology. The company has diversified its client base effectively, with no single client accounting for more than 12% of its revenue, and the largest sector making up 25%.

One significant advantage for SoundHound is its rapid growth rate. In the third quarter, the company’s revenue jumped 89% year-over-year to $25.1 million, and it anticipates further doubling its revenue by 2025. Meanwhile, Palantir's revenue grew 30% year-over-year to $726 million. Although Palantir's revenue is nearly 30 times larger than SoundHound's, its growth rate lags behind, with analysts projecting around a 24% increase for the following year.

As companies grow, maintaining high growth rates often becomes more challenging, which explains SoundHound's faster pace compared to Palantir. Nonetheless, Palantir excels in one area where SoundHound does not: valuation.

Valuation Concerns for Both Stocks

Every stock comes with a price tag, and hype can inflate a company's valuation considerably. When we look at both companies using the price-to-sales (P/S) ratio, it is evident that both are currently expensive investments.

Palantir has a P/S ratio of 64.5, while SoundHound’s stands at 40.5, indicating that investors are paying a premium for both stocks. Some may even label them as "overvalued."

Interestingly, despite SoundHound's superior growth rate, Palantir trades at approximately a 50% higher premium. If both companies meet Wall Street’s projections for 2025, SoundHound would trade at around 20 times sales, while Palantir would command an impressive 47 times sales. A P/S ratio of 20 could be considered fair for SoundHound, while 46.5 would still seem excessive for Palantir.

In the comparison between these two AI stocks, SoundHound represents the more favorable choice. However, investors should be mindful that it carries more risk compared to many other stocks in the market.

Disclaimer: The author does not hold positions in any mentioned stocks. The opinions expressed herein do not constitute investment advice.

Palantir, SoundHound, AI