Palantir (NASDAQ: PLTR) has been a popular artificial intelligence (AI) stock pick over the past year. It surged by about 340% in 2024 and recently notched a new all-time high. However, there are other AI stocks that are even more promising. One of them is SoundHound AI (NASDAQ: SOUN), which is growing far faster than Palantir.
Here's why I think SoundHound shares can leave Palantir in the dust in 2025.
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SoundHound's software can be used in multiple applications
SoundHound AI makes software that uses audio inputs to interact with users. Most of the biggest breakthroughs in AI over the past few years have come from generative AI models that utilize text input. However, this input method is only so useful -- there are numerous situations where talking to the AI model produces a better user experience.
This isn't a new concept, as AI assistants (like Siri and Alexa) have been around for some time, but they often misinterpret what the user says. SoundHound's software is far more advanced, and has produced positive results in the applications where it has been deployed.
One area where SoundHound's platforms are being used is in restaurant order-taking, both over the phone and at drive-thrus. For example, White Castle deployed SoundHound to automate order-taking at dozens of its drive-thrus and found that the platform outperforms human-based benchmarks on order speed and accuracy.
SoundHound's software found other use cases in the automotive industry (proving the interface for digital assistants in cars), as well as in the financial, insurance, and healthcare industries.
This has led to massive growth for the company. In Q3, its revenue rose 89% year over year. This success is expected to continue, as its projected revenue will be around $165 million for 2025, almost doubling the $83.5 million it expects to report for 2024.
SoundHound also has a large backlog of contracts with clients, but for which the revenue has yet to be recognized. Now, this isn't guaranteed revenue, but the backlog metric can provide investors an idea of what they can expect from the company in the future. SoundHound AI's now exceeds $1 billion over the next six years. There's also a bit of a curve there, as management likely has great visibility into 2025 through 2027 revenue, but the next three years after that could still be taking shape.
SoundHound will still need to achieve massive growth to justify its current share price, but its backlog indicates that some of that growth is already contracted.
SoundHound isn't a cheap stock, but it's more attractive than Palantir
The market has not overlooked SoundHound's success. It has bid the stock up tremendously over the past few months due to anticipated sales growth in 2025 and beyond. SoundHound isn't profitable yet, so interested investors need to use revenue-based metrics to assess its valuation.
It's trading for 64 times sales, a figure that far exceeds the range of 10 to 20 times sales that most software companies trade within. However, most software companies don't double their revenue year over year, so SoundHound is an unusual case.
SOUN PS Ratio data by YCharts.
Based on the midpoint of SoundHound's 2025 revenue guidance, it trades at 33 times forward sales. That's still expensive, but considering the growth it already has contracted for 2026 and beyond, it appears a lot more justifiable than Palantir's valuation.
Palantir is a much larger company, and it's also turning a profit. However, it's only growing its revenue by around 30% annually, and recently traded for 74 times sales. That's even more expensive than SoundHound's already lofty price tag, though it's growing much slower.
This disconnect can't last forever. It won't be surprising if SoundHound's stock leaves Palantir's in the dust from here based on its currently "cheaper" price tag and far superior growth.
Should you invest $1,000 in SoundHound AI right now?
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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
