Better Artificial Intelligence (AI) Stock: Palantir vs. SoundHound AI

Palantir Technologies (NASDAQ: PLTR) and SoundHound AI (NASDAQ: SOUN) have witnessed contrasting fortunes on the stock market this year, even though both companies have been growing at a tremendous pace thanks to healthy demand for their artificial intelligence (AI) solutions.

While Palantir stock surged 71% in 2025 as of this writing, SoundHound has dropped more than 43%. Investors continue to buy Palantir stock hand over fist despite its expensive valuation, as demand for the company's AI software platform has been getting better with each passing quarter. However, SoundHound stock has taken a beating due to factors outside its control, even though its conversational AI solutions are gaining healthy traction in the market.

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So, should investors consider taking advantage of the sharp decline in SoundHound stock and start buying it over Palantir? Or is Palantir still a better AI stock to buy right now, despite its expensive valuation? Let's find out.

Image source: Getty Images.

The case for Palantir Technologies

Palantir's Artificial Intelligence Platform (AIP) has been a hit among customers, as it enables them to significantly improve the efficiency of their operations by reducing downtime, increasing productivity, or both. As a result, Palantir is not only attracting new customers for AIP but is also winning more business from existing ones.

As pointed out by chief revenue officer Ryan Taylor on the company's recent earnings conference call:

Customers are getting started, then expanding in quick succession. A large healthcare company did a boot camp with us in December, and five weeks later, converted to a five-year, $26 million ACV enterprise agreement. A global bank started a pilot with us in Q4 2024, signed a $2 million engagement a month later, then expanded to a three-year, $19 million ACV engagement four months after that.

This explains why there has been a remarkable acceleration in the value of contracts that Palantir has been signing in recent quarters. Palantir booked total contracts worth $1.5 billion in the first quarter of 2025, an increase of 66% from the year-ago quarter. That was an acceleration over the 56% growth in total contract value (TCV) in the fourth quarter of 2024.

This sharp increase in Palantir's TCV is the reason why the company's total remaining deal value (RDV) stood at almost $6 billion at the end of Q1, an increase of 45% from the year-ago period. RDV is the total remaining value of contracts that Palantir is yet to fulfill at the end of a quarter. The fact that this metric outpaced the company's year-over-year revenue growth by six percentage points means that it is winning new business faster than it is fulfilling existing contracts.

As a result, investors can expect further acceleration from Palantir going forward, especially considering that the growth in its contract value is now exceeding the AI software platforms market's projected annual growth rate of 40%. Additionally, Palantir's margin profile has improved significantly in the past couple of years following the launch of AIP in April 2023.

PLTR Profit Margin data by YCharts

That's not surprising, as the company's ability to get more business from existing customers is positively impacting its margins. Also, the $153 billion revenue opportunity that the AI software platforms market is expected to present by 2028 means that Palantir could be at the beginning of a massive growth curve considering that it generated $3.1 billion in revenue in the past 12 months.

In all, there is a good chance that Palantir may remain a top growth stock for years to come thanks to its lucrative AI software opportunity.

The case for SoundHound AI

While Palantir is benefiting from rapid deployment of AI software solutions across both enterprises and government organizations, SoundHound AI is tapping another lucrative opportunity in the form of the conversational AI space. According to one estimate, the conversational AI market could grow 11x in size by 2035 and generate annual revenue of $136 billion at the end of the forecast period. That would translate into an annual growth rate of almost 24%.

SoundHound AI is growing at a much faster pace than this market right now. Its revenue increased by a whopping 151% year over year in the first quarter, and the company expects its top line to almost double in 2025 to $167 million at the midpoint of its guidance range. The projected size of the conversational AI market over the next decade indicates that SoundHound still has a lot of room for growth.

The good part is that the company is in a position to sustain its outstanding growth for the foreseeable future, considering that it reported a cumulative subscriptions and bookings backlog of $1.2 billion in February this year, up by 75% from the year-ago period. SoundHound management says that this metric "is based on contracts signed and gives a snapshot of the revenue we expect to realize over the coming several years."

Importantly, SoundHound has been pushing the envelope in the voice AI market by not only expanding its reach in new verticals such as financial services and healthcare by way of acquisitions, but it is also adding new solutions to its portfolio.

For instance, SoundHound recently released a new voice-based agentic AI platform that will enable customers to build and deploy voice-enabled AI agents. The company believes that this platform will help organizations boost productivity and reduce costs, as AI agents will be able to answer questions without requiring human intervention.

Entry into the voice AI agents market should open up another terrific growth opportunity for SoundHound, since this space is expected to grow at an annual rate of 35% through 2034. So, even SoundHound seems primed for healthy long-term growth thanks to AI, but is it a better bet than Palantir?

The verdict

Both SoundHound and Palantir are growing at exceptionally solid rates. However, SoundHound is growing at a much faster pace, given its smaller revenue base, while the good thing about Palantir is that its growth rate should continue to pick up because of the fast-improving pipeline. So, buying one of these two AI stocks right now will most likely boil down to the valuation.

Palantir is trading at a really expensive 103 times sales right now. That's more than 2.5x when compared to SoundHound's sales multiple. Of course, Palantir may be able to justify its valuation in the long run thanks to its favorable unit economics and the multibillion-dollar opportunity in AI software, but the massive premium it is trading at could discourage new investors from buying the stock.

SoundHound, while also expensive at 40 times sales, looks like a much more reasonable AI stock to buy right now in light of its outstanding growth and robust pipeline that could help it regain its mojo and fly higher.

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Harsh Chauhan 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.