Better Artificial Intelligence Stock: SoundHound AI vs. Palantir

SoundHound AI (NASDAQ: SOUN) and Palantir Technologies (NASDAQ: PLTR) are both well-positioned to profit from the rapid growth of the artificial intelligence (AI) market. SoundHound develops AI-powered speech and audio recognition tools, while Palantir's AI-driven data mining services help government agencies and large companies make faster and smarter decisions.

SoundHound went public by merging with a special purpose acquisition company (SPAC) on April 28, 2022, and the combined company's stock started trading at $8.72 per share. Palantir went public via a direct listing on Sept. 30, 2020, and its stock opened at $10. SoundHound's stock now trades just below $10, but Palantir's stock has surged to nearly $115. Let's see why Palantir outperformed SoundHound AI by such a wide margin -- and if it's still the better AI play right now.

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SoundHound could struggle to justify its high valuations

SoundHound's namesake app can identify a song by hearing a recorded clip or a few hummed bars. But its core growth engine is actually Houndify, its development platform for custom AI-powered voice, audio, and conversational applications.

That's an appealing choice for companies that don't want to share their data with a tech giant like Alphabet's Google or Microsoft. Its customers include automakers like Hyundai, smart TV makers like Walmart's Vizio, and fast food chains like Church's Chicken. Nvidia also uses Houndify in its Drive operating system for connected vehicles.

SoundHound's revenue rose 47% in 2022, 47% in 2023, and 85% in 2024. That recent acceleration was partly driven by its acquisitions of the restaurant AI company Synq3, the online food ordering platform Allset, and the conversational AI company Amelia. It also partnered with the chatbot maker Perplexity to upgrade its own large language models (LLMs).

Analysts expect SoundHound's revenue to surge 96% to $166 million as it narrows its net loss from $351 million to $97 million. That outlook seems bright, but a few issues are likely preventing its stock from taking off. With a market cap of $3.9 billion, SoundHound still looks expensive at 23 times this year's sales. It's also expected to stay unprofitable for the foreseeable future, and it even postponed its 10-K filing by 10 days in March to deal with the "complexity" of its acquisitions of Synq3 and Amelia. To make matters worse, Nvidia -- which once owned a minor stake in SoundHound -- liquidated its entire stake earlier this year. As it faces those issues in this wobbly and unpredictable market, it could struggle to justify its high valuations.

But Palantir is trading at even bubblier valuations

Palantir operates two main platforms: Gotham for its government clients and Foundry for its commercial clients. Gotham serves most of America's government agencies and military branches, while Foundry serves big companies like Morgan Stanley and Airbus. Both platforms provide integrated AI tools for building custom AI applications.

Palantir's revenue rose 24% in 2022 and 17% in 2023. Its growth decelerated as the macro headwinds drove its commercial customers to rein in their spending, and it struggled with the uneven timing of its new U.S. government contracts. However, it turned profitable in 2023 as it reined in its spending and reduced its stock-based compensation expenses.

In 2024, Palantir's revenue increased 29% as its EPS more than doubled. That acceleration was fueled by the rapid growth of its U.S. commercial business, which bounced back as interest rates declined; geopolitical conflicts, which fed new government contracts; and the increased adoption of its AI tools to craft customized AI applications. Its growing market cap and stable profits led to its addition to both the S&P 500 and Nasdaq-100 in the fourth quarter of 2024.

In 2025, analysts expect Palantir's revenue and EPS to soar 31% and 35%, respectively, as its core markets keep growing. That outlook is rosy, but it's getting overvalued. At $115 per share with a market cap of $270.5 billion, Palantir trades at 213 times its forward adjusted earnings and 72 times this year's sales. In other words, any bad news -- including reductions to government spending and tariff-induced headwinds for its top commercial clients -- could pop those bubbly valuations.

So, which stock is the better AI play right now?

I wouldn't rush to buy either of these stocks right now. SoundHound is still expanding, but its growing dependence on acquisitions and its lack of profits indicate its business isn't sustainable yet. Palantir's business looks a lot healthier, but it's trading at meme stock valuations. But if I had to pick one over the other, I'd stick with Palantir. I wouldn't go all-in on its stock at these prices, but I'd be willing to dollar-cost average into the stock over the next few quarters or years to smooth out its volatile swings. I'm not as confident in SoundHound's long-term growth potential yet.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Microsoft, Nvidia, Palantir Technologies, and Walmart. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.