Comparing Palantir and SoundHound AI: The Top AI Stocks for 2025

As we look ahead to 2025, two of the most talked-about stocks in the artificial intelligence (AI) sector are Palantir Technologies (PLTR) and SoundHound AI (SOUN). Both companies experienced remarkable growth in 2024, with Palantir's stock soaring by nearly 400% and SoundHound AI's stock rocketing up almost 900%. This performance is quite extraordinary, making any investor curious about the potential of these companies moving forward.

Innovative AI Solutions from Both Companies

While Palantir and SoundHound AI both operate in the AI industry, their business models are quite different. Palantir specializes in delivering customized AI applications designed to provide real-time insights to their clients. Their offerings include tools that facilitate generative AI integration into organizations, maximizing efficiency rather than merely serving as supplementary tools. While Palantir's main clientele consists of government agencies, its commercial operations have quickly embraced the newest AI technologies, which bodes well for future growth.

On the other hand, SoundHound AI focuses on harnessing audio input for its AI models, leading to a vast number of potential applications. The company has formed partnerships with major players in the AI sector, including Nvidia, to enhance its technology across various platforms. SoundHound AI's applications have been predominantly utilized in the restaurant and automotive industries, with recent success also noted in finance and healthcare.

Financial Growth: A Tale of Two Companies

Analyzing the financial health of both companies reveals stark differences. Palantir is larger and currently profitable, but its growth is comparatively slower. SoundHound AI is smaller but growing at a rapid pace.

In the third quarter, Palantir reported a robust revenue increase of 30% year-over-year, reaching $725 million, while SoundHound AI saw an impressive revenue growth of 89%, totaling $25 million. Palantir also achieved a healthy profit margin of 20%, whereas SoundHound AI faced a negative margin of 87%.

Despite Palantir's favorable profit margins, the landscape for 2025 could shift significantly. Analysts predict Palantir's revenue to grow by 24% in the upcoming year, while SoundHound AI's revenue is projected to soar by 96%. This discrepancy indicates that SoundHound AI could be on the cusp of explosive growth as Palantir may see a decline.

While SoundHound AI is not expected to turn a profit in 2025, their management is optimistic about reaching adjusted EBITDA profitability by that time. This is a positive sign and indicates progress, even though it is not conventional profitability.

Valuation Challenges for Both Stocks

Both Palantir and SoundHound AI have seen tremendous stock price increases, but this has not necessarily been accompanied by corresponding growth in revenue or profit, leading to significant valuation challenges. SoundHound AI now trades at a staggering 92 times its sales, while Palantir is valued at 75 times its sales, making both stocks among the priciest options on the market.

Typically, valuations of 92 or 75 times earnings would seem exorbitant. However, these stocks are trading at those heights without factoring in expenses, complicating the investment landscape.

Palantir is more established than SoundHound AI and aims for profit margins around 30%. If its growth slows to 24% as expected, it will take approximately six years for the stock to reach a reasonable valuation without any price increases. Such inflated expectations may be challenging for Palantir to meet.

Conversely, SoundHound AI could double its revenue over the next three years, which would reduce its price-to-sales ratio to around 11.5 by 2027, aligning it more with traditional software company valuations.

Ultimately, both stocks come with high expectations already priced in, meaning future growth may rely more on market hype than on tangible business results. However, if forced to choose, many investors might lean towards SoundHound AI due to its fast growth rate, potentially leading to a quicker adjustment in its valuation.

AI, Stock, Growth