Better AI Stock: Palantir vs. SoundHound AI
Key Points
Palantir and SoundHound AI both have lofty valuations that require excellence, and one of these AI stocks is more capable of delivering.
Palantir is signing big deals left and right while boasting impressive revenue growth and margin expansion.
SoundHound AI also has high revenue growth, but it is burning through a lot of cash.
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Palantir Technologies (NASDAQ: PLTR) and SoundHound AI (NASDAQ: SOUN) are two AI stocks that have gone in opposite directions this year. Palantir's stock price has more than doubled and the company may wind up with a $1 trillion market cap by 2030. Meanwhile, SoundHound AI stock has lost more than 30% of its value and fallen to a $5 billion market cap.
The divergence between these two stocks will likely expand in 2026. Here's why Palantir looks like the winner.
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Palantir offers an essential product for governments and business owners
Palantir's software products let governments and businesses access, analyze, and interpret big data in a way that few companies can. Its Gotham software assists governments, while Foundry is for businesses, and both segments are growing rapidly. The software company delivered 63% year-over-year revenue growth in the third quarter and posted its highest sequential quarterly revenue growth in its history.
Customers enroll in monthly plans, which results in annual recurring revenue for Palantir. Not only does it do a good job of retaining customers, but it's signing deals left and right. Palantir closed 204 deals of at least $1 million, 91 deals of at least $5 million, and 53 deals of at least $10 million.
That's a lot of deals at high prices. The business model is proven and has become quite profitable. Palantir wrapped up the quarter with a 40% net profit margin.
SoundHound AI isn't having the same success
Not every AI stock is a winner, and SoundHound AI has been disappointing for investors this year. Its conversational AI products can be useful for customer service, and it is growing.
Revenue increased by 68% year over year to reach $42 million in Q3. However, SoundHound AI also burned through $109.3 million in the quarter.
It's normal for growth stocks to be unprofitable for a few years while they prioritize revenue growth, but a 31.5 price-to-sales ratio doesn't leave much room for error. Granted, Palantir has an absurd 111 P/S ratio, but significant revenue growth and profit margin expansion for top-tier software products makes it somewhat easier to justify.
To its credit, the SoundHound AI team has secured a bunch of deals across various industries. The company mentioned deals with companies like Stellantis' Jeep, German EV maker Togg, and "three of the top 10 global financial services institutions." SoundHound AI did not provide contract amounts or terms in its Q3 press release.
Final verdict
SoundHound AI has a good product, but it also has high net losses and a lofty valuation. Palantir's valuation is at nosebleed levels, but everything else about the stock is great.
Palantir can justify its valuation in a few years with robust revenue growth and expanding margins. The company has a long record of frustrating shorts and delighting investors with impressive financial results, not just hype. SoundHound AI's high revenue growth isn't enough to unseat Palantir as the victor of this battle.
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Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool recommends SoundHound AI and Stellantis. The Motley Fool has a disclosure policy.
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