Artificial intelligence (AI) garnered considerable investor attention over the past year. Of the many companies touting AI capabilities, Palantir Technologies(NYSE: PLTR) and SoundHound AI(NASDAQ: SOUN) are noteworthy investment opportunities for different reasons.
Palantir uses AI as an analytics tool to shift through mountains of data. In this way, its AI provides organizations with insights used for various applications, from operational improvements to fighting wars.
SoundHound employs AI to understand human speech. It's a useful tool to embed into various consumer devices, from TVs to cars, allowing you to talk naturally when issuing commands to these devices.
Both companies are experiencing success thanks to their AI solutions. Read on to learn more about why these companies are compelling investments and which is the better AI investment.
A look into Palantir
Palantir's CEO Alex Karp explained the company's approach to AI, describing AI as "wild animals, whose power and capabilities must be tamed and harnessed. And we are now seeing what is possible once they are."
The company is "taming" AI through its AI platform (AIP), released in 2023. Palantir started by building software for the U.S. government's intelligence community. Now, thanks to its AIP, customer count in its non-government segment grew 83% in the second quarter compared to last year.
As a result, the company's year-over-year revenue growth is accelerating.
| Quarter | Revenue | YOY Growth |
|---|---|---|
| Q2 2024 | $678.1 million | 27% |
| Q1 2024 | $634.3 million | 21% |
| Q4 2023 | $608.4 million | 20% |
| Q3 2023 | $558.2 million | 17% |
Data source: Palantir. YOY = year-over-year.
A key factor in Palantir's success is its use of bootcamps. These are hands-on training sessions designed to help customers quickly learn to use its AIP to solve business problems.
The firm's success has led to healthy financials. Palantir is profitable, earning $135.6 million in Q2 net income. Its balance sheet includes total assets of $5.2 billion, with $4 billion of that in cash, cash equivalents, and marketable securities. Liabilities totaled $1.1 billion.
SoundHound's pros and cons
SoundHound's AI-powered voice platform can handle complex verbal commands. For example, you could ask a SoundHound-enabled device, "Show me all restaurants within half a mile of the Seattle Space Needle that are open past 9 p.m. on Wednesdays and have outdoor seating."
This ability attracted a number of customers, such as Hyundai, which uses SoundHound to provide voice commands in its vehicles. Consequently, SoundHound has achieved double-digit year-over-year revenue growth annually since 2021, the year before its initial public offering (IPO).
Data by YCharts.
That growth is about to accelerate. This year, the company made some strategic acquisitions to fast-track its business expansion.
As a result, SoundHound updated its 2024 revenue expectations from at least $63 million, which would have been an impressive double-digit growth over 2023's $45.9 million, to over $80 million. In 2025, the firm anticipates sales to jump to $150 million.
Despite the sales increase, SoundHound is not profitable. In Q2, the company suffered a net loss of $37.3 million. Moreover, its Q2 gross margin plunged from 79% in 2023 to 63% this year due to its acquisitions, which include a mix of lower-margin businesses.
Deciding between Palantir and SoundHound stock
It can prove tricky to choose between Palantir and SoundHound. Both companies possess successful AI products, but that success has caused the price of both stocks to skyrocket over the past year.
Palantir's share price surged from a 52-week low of $13.68 last September to a high of $33.13 on Aug. 22. SoundHound's went from a low of $1.49 in October to $10.25 this year.
In Palantir's case, the increase brought its price-to-earnings (P/E) ratio, commonly used for stock valuation, to 187 currently, which is quite high. This P/E multiple contributed to the current consensus among Wall Street analysts of a "hold" rating with a median price target of $28 for Palantir shares. That target suggests they see the stock as overvalued, given its more than $30 share price at the time of this writing.
As for SoundHound, because it isn't profitable, rather than the P/E ratio, a more applicable metric to assess stock valuation is the price-to-sales (P/S) ratio.
Data by YCharts. PS = price to sales.
Palantir's P/S ratio shot up as its stock price climbed after Q2 results were released on Aug. 5. Therefore, SoundHound looks like the better value. In addition, the current consensus among Wall Street analysts is a "buy" rating with a median price target of $7 for SoundHound shares.
That said, I think Palantir is the better AI stock between these two. The primary reason is that Palantir's technology is used in high-stakes situations, such as supporting Ukraine in its war against Russia. Also, Palantir's non-government revenue is growing. Q2 sales in its commercial segment hit $307.4 million, a 33% increase over 2023.
Given the key role that Palantir's tech plays for organizations around the world, and since it's a profitable company with excellent financials, it wins out over SoundHound as the better AI stock to buy and hold over the long term. Because Palantir stock is a bit pricey right now, wait for a dip before grabbing shares.
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Robert Izquierdo has positions in Palantir Technologies and SoundHound AI. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
