Advantaging Artificial Intelligence Investments: Palantir versus SoundHound's AI Capabilities
Artificial intelligence stocks have seen a surge in investor interest, with two notable players in this field being Palantir Technologies (PLTR) and SoundHound AI (SOUN). Palantir's shares have skyrocketed by over 300% in the past year, while SoundHound's have soared by a staggering 600%. But which of these stocks is the better investment choice for capitalizing on the expanding AI market?
The case for Palantir
Palantir's business is thriving due to its Artificial Intelligence Platform (AIP), which was launched back in 2023. As CEO Alex Karp said in the third-quarter earnings press release, "We absolutely eviscerated this quarter, driven by unrelenting AI demand that won't slow down."
What makes Palantir's AIP stand out is its AI agent, which goes beyond the simple chat-based AI tools popularized by platforms like ChatGPT. This AI agent can take action on behalf of its users, demonstrating its powerful capabilities. For instance, Palantir's AIP improved a large insurance company's underwriting workflow from a two-week timeframe to just three hours.
Palantir's Q3 revenue grew by 30% year-over-year, landing at $725.5 million. This boosted its Q3 net income, doubling from $73.4 million in 2023 to $149.3 million in 2024. Free cash flow also saw a significant increase, rising by 60% to $434.5 million. With $768.7 million in cash and equivalents and $3.8 billion in marketable securities, Palantir's financial position is robust, overcoming a total liability of $1.2 billion.
A look at SoundHound AI
SoundHound's share price surged in the past year due to several factors, including a 89% year-over-year sales increase in Q3 to a record $25.1 million. Investment bank H.C. Wainwright also raised its price target on SoundHound stock from $8 to $26 in December and the stock's popularity as a meme stock added to its appeal.
Despite these short-term tailwinds, SoundHound's long-term prospects are still up for debate. Despite the stock dropping by 6% in the last month, SoundHound completed important acquisitions, such as its $80 million purchase of Amelia AI, which strategically positioned it for long-term success. Acquisitions like these reduced SoundHound's reliance on its largest customer from 72% of Q3 2023 sales down to 12% in Q3 2024.
SoundHound's balance sheet is strong as well. Total assets for Q3 2024 reached $499.7 million, with $135.6 million in cash and equivalents. SoundHound anticipates 2024 revenue of between $82 to $85 million, up from $45.9 million in 2023, with sales expected to rise further to a range of $155 to $175 million in 2025.
Choosing between Palantir and SoundHound AI
Both Palantir and SoundHound AI have compelling investment cases. However, after considering factors such as financial stability, revenue growth, valuation, and market position, here's the case for why Palantir is the better long-term investment in the expanding AI market.
Palantir is profitable, while SoundHound booked a net loss of $21.8 million in Q3 2024. Palantir's price-to-sales (P/S) ratio is also lower than SoundHound's, indicating better value for investors. Palantir also added to its success by being added to the S&P 500 index, increasing its liquidity and potential for significant appreciation.
In summary, Palantir Technologies has solid financials, strong revenue growth, and a secure valuation, making it a better long-term investment in the expanding AI market compared to SoundHound AI.
In light of Palantir's robust financial performance and revenue growth, investing in their stocks could potentially yield high returns. For instance, Palantir's Q3 net income doubled from 2023 to 2024, while its free cash flow also increased significantly.
Considering the current market dynamics and the potential of the AI sector, allocating money towards finance vehicles like Palantir's stocks could be an astute financial decision.