This Under-the-Radar AI Stock Could Outperform Palantir Over the Next Decade

Palantir Technologies (NASDAQ: PLTR) has been one of the best-performing AI investments over the past few years. It won massive contracts in commercial and government businesses, and has become a building block for deploying AI software at an enterprise scale. However, the market has gotten extremely excited about the stock, causing it to get overheated and overvalued.

I think there's one under-the-radar AI stock could easily outperform it over the next decade. SoundHound AI (NASDAQ: SOUN) could end up mirroring Palantir's returns, as it has all the makings of becoming the building blocks for much larger AI applications.

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SoundHound AI and Palantir aren't competitors

Palantir and SoundHound AI aren't competitors, despite both being involved in the AI realm. Palantir's platform focuses on taking data in, running it through artificial intelligence solutions, and then informing a decision-maker of the best choice possible or doing it on its own through agentic AI.

SoundHound AI's product is more of an interface, as it allows its users to deploy best-in-class audio recognition technology with AI. This isn't a new concept, as digital assistants like Siri and Alexa have been around for a long time. While they can be useful, they also make a lot of mistakes. SoundHound AI's products are far more accurate than those currently available and can outperform their human counterparts in some areas, such as drive-thru ordering accuracy.

While restaurant automation is one area where SoundHound AI is seeing large deployment, it's also making its way into digital assistants in cars. These are all areas where there could be a lot of background noise that interferes with the accuracy of SoundHound AI's results. If it can work in those situations, it can be deployed anywhere a human isn't interacting face-to-face.

A massive application for SoundHound AI's products could be found in the healthcare and financial services industries, and SoundHound is already making inroads within these sectors. During its Q2 results, SoundHound AI announced that seven of the top 10 global financial institutions were its clients, and four of them either renewed or expanded their contracts during Q2. It also signed a major healthcare provider, which further increased its footprint.

SoundHound AI is rapidly growing, and its management team thinks that it can grow at a 50% organic growth rate for the foreseeable future. That's impressive, but is it enough to outperform Palantir over the next decade?

Palantir's stock trades at a huge premium to SoundHound AI's

While growth is a major factor in long-term returns, so is valuation. Right now, both of these companies have a premium valuation that is far more expensive than most stocks typically trade at.

At 139 times sales for Palantir and 52 times sales for SoundHound AI, these two are among the most expensive stocks on the market.

PLTR PS Ratio data by YCharts

While I'll buy an argument that they have earned that premium through impressive growth, 139 times sales is an incredibly high price to pay for any stock. That is several years' worth of growth already baked into the stock price, and it is valued at nearly three times the level of SoundHound AI.

I think this is far too high a premium to pay, especially because SoundHound AI has a much longer growth runway than Palantir because it is a much smaller company. I think this will allow SoundHound AI to outperform Palantir over the next decade. However, if a competitor comes out with a superior product to SoundHound AI's, this won't be the case. I don't see that happening, but it's a reality when you're competing in a massive industry with relatively little competition.

SoundHound AI could be a great stock pick if the growth management projects pan out, but it's far from a surefire bet.

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.