Palantir vs. SoundHound: Which AI Stock Has More Upside Potential?

Palantir Technologies (PLTR) and SoundHound (SOUN) stocks have delivered jaw-dropping returns in 2024. PLTR stock has surged about 242% year-to-date, and SoundHound has outpaced it with a staggering 258% gain. For context, these gains leave the S&P 500 Index’s ($SPX) solid 25.8% growth in the dust.

Both companies are benefiting from the solid demand for their artificial intelligence (AI) offerings. Higher spending on AI infrastructure and rapid adoption of the technology across businesses to drive operations, productivity, customer experiences, and boost efficiency are leading to higher revenues for both Palantir and SoundHound.

Enterprise software solutions provider Palantir has seen skyrocketing demand for its Artificial Intelligence Platform (AIP). The platform enables companies to harness AI for data analysis, decision-making, and predictive insights. This has translated into robust revenue growth and an expanding client base.

Meanwhile, SoundHound, which specializes in voice AI technology, is carving out a niche in conversational AI. Its products, like SoundHound Chat AI and AI Customer Service solutions, are gaining traction as businesses seek to enhance customer engagement and streamline service delivery. Its impressive financials and stock performance reflect the strong demand for its offerings.

While both have enjoyed explosive growth, the big question for investors now is: which stock has more upside potential? Let’s explore this further.

Palantir: Riding the Wave of AI Demand

Palantir has been experiencing strong demand for its products and platform thanks to the unprecedented demand for its AI-driven solutions, with AIP driving both new customer conversions and existing customer expansions.

In the third quarter, Palantir's revenue grew by 30% compared to last year, with its U.S. business leading the charge. U.S. revenue was up 44% year-over-year, boosted by the government and commercial sectors.

The U.S. government side of the business saw impressive growth, with revenues increasing 40% year-over-year. Similarly, its U.S. commercial business grew by 54% over the same period, reflecting heightened demand for Palantir’s AI-driven solutions.

Palantir’s customer base is expanding quickly, especially in the U.S. commercial sector. The company secured nearly $300 million in new contracts, with customer numbers up 77% compared to last year. This surge highlights how enterprises are quickly adopting AI and creating new opportunities for Palantir.

On the profitability front, Palantir’s adjusted gross margin stood at an impressive 82%, with an adjusted operating margin of 38%, marking its eighth consecutive quarter of margin expansion.

However, the stock’s high valuation remains a matter of concern. With its expensive price-to-sales ratio of 58.77, Palantir stock trades at a premium. Analysts caution that the stock could be overvalued as they maintain a “Hold” consensus rating, with the average price target of $33.78 suggesting a significant downside from current levels.

Even so, Palantir’s price action has repeatedly outpaced analysts’ predictions. Moreover, the ongoing momentum in Palantir’s business, solid demand for its AIP, and new product launches are hard to ignore, and could continue to push its stock price higher.

Is SoundHound Stock Going to Grow?

SoundHound continues to witness strong customer momentum across all of its key industries. In the last earnings report for Q2, the company posted a robust 54% year-over-year revenue increase, reaching $13.5 million. This marked the fourth consecutive quarter that SoundHound has surpassed $10 million in revenue, solidifying its growth trajectory.

The company also took significant steps to improve its balance sheet, paying down debt and converting outstanding preferred equity. These actions have further strengthened its capital position, providing the flexibility needed to seize new opportunities. SoundHound is strategically deploying its capital through organic investments, aggressive scaling via partnerships, and acquisitions to accelerate growth.

A key indicator of SoundHound's growth is its backlog, which includes cumulative subscriptions and bookings. In Q2, the backlog nearly doubled year-over-year to an impressive $723 million, with an average duration of just under seven years. The restaurant industry led this expansion, but the company is also gaining ground with automotive partners.

SoundHound is not only growing organically but also through strategic acquisitions. Its recent purchase of conversational AI leader Amelia is set to expand its reach across new industries and deepen its enterprise footprint. This follows earlier acquisitions like SYNQ3, which boosted its restaurant business, and Allset, aimed at enhancing its voice-enabled monetization strategy. With Amelia, SoundHound aims to accelerate its customer service offerings, penetrating hundreds of enterprise brands in the conversational AI space.

Analysts are optimistic about SoundHound’s future, giving it a “Strong Buy” consensus rating. However, with its stock price already reflecting much of its growth potential, the average price target of $7.58 is in line with current market levels.

The Verdict

Palantir and SoundHound are thriving in the AI boom, offering compelling growth stories. Palantir’s expansive platform and strong government ties position it as a key player in enterprise AI. At the same time, SoundHound’s niche in conversational AI and strategic acquisitions make it a formidable contender in voice technology.

Despite their strong growth stories, both Palantir and SoundHound face valuation concerns. Analysts' estimates suggest limited upside potential, based on current price targets. However, Wall Street sentiment favors SoundHound.

Nonetheless, both companies offer compelling cases for growth-focused investors to ride the AI wave. While valuation remains a key consideration, their innovative platforms and strategic positioning could provide long-term value in the rapidly advancing AI sector.

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On the date of publication, Sneha Nahata did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.