Should You Consider SoundHound AI Instead of Palantir?

Palantir (NASDAQ: PLTR) has surged into the spotlight on Wall Street, experiencing a remarkable increase of over 300% in 2024. This impressive performance has led many investors to question if this AI stock is the best choice currently available. However, there might be an even more compelling AI investment worth considering.

SoundHound AI (NASDAQ: SOUN) is often highlighted as a potential millionaire-maker stock in the AI sector. But can it really surpass Palantir? Let’s delve into the details.

SoundHound AI's Growth Potential Outshines Palantir

For either stock to make a significant impact on your wealth, they would need substantial growth. Let’s assume an initial investment of $10,000 for both companies. To turn this into $1 million, each would need to increase in value by 100 times. For Palantir, achieving this would mean a staggering market cap of $15.9 trillion, which is more than four times the valuation of the world's most valuable company, Apple, currently valued at $3.67 trillion. In comparison, SoundHound AI would need to reach a market cap of $375 billion, making it a more feasible option for potential millionaire-making.

A better way to assess these companies is by looking at their growth rates, which can accelerate one's journey to wealth.

Both Palantir and SoundHound AI are significantly involved in AI technology. Palantir focuses on developing specialized applications for businesses, enabling decision-makers to access real-time information by deploying AI effectively. They are also working to integrate generative AI into existing workflows, making AI an integral part of operations rather than a supplementary tool.

Conversely, SoundHound utilizes AI to convert audio inputs into actionable data. This technology allows industries such as automotive, restaurant, and finance to automate processes traditionally performed by humans. Although SoundHound is smaller than Palantir, it has successfully diversified its client base, ensuring that no single client contributes more than 12% of its revenue.

Moreover, SoundHound has the upper hand regarding growth rates. In Q3, the company's revenue skyrocketed by 89% year-over-year, reaching $25.1 million. Analysts predict that this upward trend will continue, with revenue expected to double in 2025 compared to 2024. While Palantir also shows positive growth, its rate is significantly slower. In the same quarter, Palantir's revenue grew by 30% year-over-year, amounting to $726 million. However, Wall Street predicts only a 24% growth for Palantir in the upcoming year.

As companies grow, they often face challenges in maintaining high growth rates. Thus, it's not surprising that SoundHound is outpacing Palantir in this regard. However, Palantir does hold one notable disadvantage—it appears to be more expensive.

Analyzing Valuations: How Do They Compare?

Every stock has a price tag, and the more potential a company has, the higher its valuation tends to be. When we examine the price-to-sales (P/S) ratio for both companies, it's clear they are considered quite expensive.

Palantir currently trades at 64.5 times its sales, while SoundHound is priced at 40.5 times its sales. These valuations may lead some investors to deem both stocks as "overvalued."

What is intriguing, however, is Palantir's higher premium despite its slower growth rate compared to SoundHound. If both companies meet the projected 2025 revenue, SoundHound would drop to a P/S ratio of 20, which seems reasonable for its expected growth. Meanwhile, Palantir would still be trading at an elevated P/S ratio of 47, which many might find too high given its growth rate.

In summary, while SoundHound appears to be the more attractive investment option in the AI realm, it remains a riskier venture compared to many other stocks. Investment decisions should take into account the associated risks along with potential returns.

investment, stocks, AI