Palantir (NASDAQ: PLTR) has become one of the hottest stocks on Wall Street. Its stock has shot up over 300% in 2024, making it one of the best-performing stocks in the market. As a result, many investors are wondering if this is the best AI stock to buy right now. However, I think there's a much more promising AI company out there, and it has far better growth than Palantir.
SoundHound AI (NASDAQ: SOUN) is another stock often touted as a potential AI millionaire maker. But could it outperform Palantir? Let's take a look.
SoundHound AI has a far greater chance of making you a millionaire by itself
For either of these two stocks to make you a millionaire by itself would require significant growth (although SoundHound would be more feasible). Let's start with an initial investment of $10,000. That would require each stock to rise by 100 times in value. If Palantir did that, it would be worth $15.9 trillion. For reference, the largest company in the world right now is Apple, which is valued at $3.67 trillion. SoundHound AI doesn't have as ridiculous of a path to becoming a millionaire maker, as it would need to be worth $375 billion to turn $10,000 into $1 million.
So, a better way to look at these two investments is that they will grow faster than the broader market, accelerating your path to becoming a millionaire.
But which one will do it better?
Both Palantir and SoundHound AI are deeply involved in the AI game. Palantir builds application-specific programs for each business to deploy AI so that decision-makers can be armed with the most up-to-date information possible. It's also working to integrate generative AI into workflows, so AI isn't a product that's used on the side.
SoundHound is centered around a different part of AI. Its software takes audio inputs and plugs them into AI models, allowing sectors like the automotive, restaurant, or financial services industries to automate tasks that humans traditionally do. As SoundHound is a much smaller company than Palantir, it's relatively early on its journey of implementing its software. However, it diversified its business significantly, and no single client makes up more than 12% of revenue, and its largest sector makes up 25%.
SoundHound also has a key advantage over Palantir: It's growing much faster. In Q3, SoundHound's revenue grew 89% year over year to $25.1 million. It expects massive growth in 2025, with revenue expected to double from 2024's figure. Palantir is also doing well, but not nearly that well.
In Q3, Palantir's revenue rose 30% year over year to $726 million. That means Palantir's revenue is nearly 30 times that of SoundHound's. However, it's not growing nearly as fast, and Wall Street analysts expect Palantir's revenue to rise around 24% next year.
As companies get larger, it becomes harder to grow as fast, so it's not surprising to see the upstart exceeding Palantir's growth rate. However, there is one metric Palantir is beating SoundHound at, and it's not a good one.
Both stocks are incredibly expensive
Every stock has its price, and the more hype and potential it has, the higher its valuation. When assessing both companies by the price-to-sales (P/S) ratio, it's clear both stocks are very highly valued.
SOUN PS Ratio data by YCharts
With Palantir trading at 64.5 times sales and SoundHound trading at 40.5 times sales, it's clear the market values these two businesses highly. Most might even consider them "overvalued."
However, it is a real head-scratcher that Palantir is growing at a significantly slower rate than SoundHound, yet it trades at a 50% higher premium.
If each company hits Wall Street's 2025 projections, SoundHound would trade for 20 times sales, and Palantir would trade at 47 times. While 20 times sales is probably a reasonable price to pay for SoundHound's stock, 46.5 is still far too high for Palantir.
In the battle of these two AI stocks, SoundHound is by far the better option. However, it still has far more risk than many other stocks in the market, so investors need to be aware of that, too.
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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and 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.
