Could SoundHound AI Be the Next Palantir?

Palantir Technologies (NYSE: PLTR) has been one of the most exciting stocks of 2024, rising around 275% year-to-date at the time of this writing. Those are impressive returns that every investor wants, which causes many to hunt for stocks that could be the next Palantir (at least in terms of stock performance).

With how exciting the artificial intelligence (AI) investing space is right now, it's an excellent hunting ground for finding stocks with massive upside. Many have identified SoundHound AI (NASDAQ: SOUN) as one AI stock with that kind of potential. So, could SoundHound AI be the next Palantir?

SoundHound AI is having a strong 2024

SoundHound AI isn't trying to hide what it does with its name. It has an AI-powered audio recognition platform that helps convert speech input to a format that AI can use as an input. This technology has ramifications everywhere and has already found many use cases.

SoundHound AI's technology has already brought AI to drive-thru windows, digital assistants in cars, and banking. This wide use case is only just the beginning for SoundHound AI. As you can imagine, there are countless places where having accurate speech input into an AI model would be useful.

This has translated into a booming business for SoundHound AI, even if it is just at the beginning stages of really seeing its business explode. In Q3, SoundHound AI generated $25 million in revenue, up 89% year over year. For reference, Palantir generated $725 million in revenue, so SoundHound AI is much smaller.

One of the biggest investment cases for SoundHound AI is its massive revenue backlog. This figure comes from the potential revenue that can be recognized if the contracts they've signed pan out, which isn't a perfect metric, but it gives investors an idea of how the business could progress. As of Q3, management stated that it's "well north of $1 billion" over a period of about six years. This underlies the massive growth potential in SoundHound AI's stock, and it looks poised to convert some of that backlog to real revenue in 2025.

Management guided that revenue will be between $155 and $175 million in 2025. Considering that SoundHound AI's 2024 projected revenue is $84 million, its revenue will double next year. That's explosive growth, and considering SoundHound AI's backlog performance, it likely can continue even after 2025.

SOUN Revenue (TTM) data by YCharts

Furthermore, the breadth of its revenue stream is expanding. During last year's quarter, 90% of revenue came from the automotive sector. Now, no sector accounts for more than 25% of total revenue. On a customer level, 72% of revenue came from a single client last year. This year, the largest customer accounts for only 12% of sales.

While SoundHound AI isn't a "risk-free" stock by any means, that level of diversification on a sector and client level represents the relative risk of the stock coming down.

On the growth side, SoundHound AI is shaping up to be a stock that may not just be the next Palantir, but one that could outperform it.

But it isn't without its risks.

SoundHound AI's stock is very expensive

SoundHound AI isn't a fly by-night stock that nobody has heard of. It's well known and has garnered a premium valuation as a result.

SOUN PS Ratio data by YCharts

SoundHound AI trades for a very expensive 38 times sales. Now, that's cheaper than Palantir's 58 times sales, but both of these figures look quite unreasonable. Make no mistake; these are two incredibly expensive stocks.

However, only SoundHound AI has the growth rate to grow into this valuation; Palantir doesn't (at least right now). If SoundHound AI can keep up its trajectory of doubling its revenue each year for a couple of years (and it has enough order backlog to reach that target), then the expensive price you pay right now might be worth it a few years down the road.

As a result, I think SoundHound AI could be a better investment than Palantir if you are patient with the stock. This is a high-risk small-cap stock, so there will be a lot of volatility. Additionally, I'd suggest keeping the position size small, as SoundHound AI could implode as fast as it rose due to a new competitor or a failed product launch.

SoundHound AI could be an incredible AI investment for 2025, but it does involve a lot of risk, so investors must be mindful of that.