SoundHound AI‘S (NASDAQ: SOUND) Shares rose nearly 875% in 2024, mainly due to record third-quarter revenues and increasing adoption of the company’s conversational AI solutions by major brands across industries. The stock also benefited significantly from a bullish report from Wedbush analyst Dan Ives, who raised the company’s price target from $10 to $22.
Palantir Technologies‘ (NASDAQ:PLTR) shares posted remarkable gains of nearly 385% in 2024, driven by unprecedented demand for the Artificial Intelligence Platform (AIP), strong financial performance, lucrative partnerships and inclusion in the benchmark S&P500 index.
While SoundHound AI showed much stronger stock price performance than Palantir, is it a better or even a comparable investment on a risk-adjusted basis? Let’s find out.
SoundHound AI has dramatically reduced its over-reliance on a small customer base. While its largest customer accounted for 72% of revenue in 2023, revenue exposure was reduced to just 12% in Q3 2024. Furthermore, the top five customers now account for less than 33% of the company’s revenue , much less than the 90% revenue exposure in 2023.
SoundHound sees increasing momentum in the automotive sector, especially in the electric vehicle (EV) space. The company signed contracts with four new EV players in the third quarter, two of which use conversational intelligence solutions in real time. SoundHound expanded its contract with Stellantis in multiple markets, with seven of the latter brands using the generative AI-enhanced digital assistant, SoundHound Chat AI. SoundHound AI is also making its presence felt in the Chinese market through partnerships with DayinTec and a major Chinese multinational technology company. As the largest EV market estimated to reach $376.4 billion by 2024, the Chinese EV market could be a major growth catalyst for SoundHound AI in the coming years.
SoundHound is the market leader in telephone ordering solutions in the restaurant industry. The company’s phone ordering solutions handled more than 100 million customer interactions. Several prominent brands are adopting SoundHound’s drive-thru and telephone ordering system.
Finally, SoundHound’s AI customer service solutions have found a solid footing in industries such as financial services, healthcare, insurance, and retail. This business segment accounts for more than half of the company’s revenue.
SoundHound AI built its multimodal, multilingual Polaris base model and trained it on billions of real conversations and more than 1 million hours of audio in multiple languages. The model has helped improve accuracy and reduce hosting costs – a solid competitive advantage for a conversational artificial intelligence company. Polaris already powers nearly a third of all AI interactions for the company’s restaurant customers. This trend is expected to strengthen in the coming quarters.
SoundHound AI’s financials speak volumes about its improving business momentum. The company expects 2024 sales to be between $82 million and $85 million and 2025 sales to be between $155 million and $175 million. The company expects to achieve adjusted EBITDA profitability by the end of fiscal 2025.
SoundHound AI also has a strong balance sheet with $136 million in cash and $43.8 million in debt at the end of the third quarter.
While SoundHound is an exceptional AI-powered company, its financial strength and target markets differ significantly from Palantir.
SoundHound’s revenue rose 89% year over year to $25.1 million, while Palantir’s revenue rose 30% year over year to $726 million. Although the revenue growth of the former companies is higher, the revenues on an absolute basis are also much smaller. So it’s clear that SoundHound is an early growth company, while Palantir has entered a more stable and mature growth phase.
SoundHound is not yet profitable, reporting a generally accepted operating loss of $33.7 million in the third quarter. On the other hand, Palantir is profitable, posting a GAAP operating income of $113.1 million in the third quarter.
From an operational perspective, government agencies and large commercial organizations primarily use Palantir’s advanced data analytics and mining offerings for complicated and mission-critical applications. These solutions are then deeply anchored in the customer’s business operations, making it difficult to switch to the competition. The established customer base is an important competitive advantage for Palantir. Rather, SoundHound’s voice AI and conversational intelligence applications are used for things like restaurant ordering, the car interface, and customer support.
Although important, these are not essential to the functioning of the business. Therefore, some customers may choose competitors such as Amazon‘s Alexa, Alphabet‘s Google Assistant, Apple‘s Siri, and Microsoft‘s Cortana.
While there is tremendous growth potential for SoundHound AI, it may not replace Palantir in any savvy investor’s portfolio any time soon.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Microsoft and Palantir Technologies. The Motley Fool recommends Stellantis and recommends the following options: long January 2026 $395 calls at Microsoft and short January 2026 $405 calls at Microsoft. The Motley Fool has a disclosure policy.
Could this artificial intelligence (AI) stock be the next Palantir? was originally published by The Motley Fool
