As the realm of artificial intelligence (AI) expands at breakneck speed, envisioning a future where the AI market surges into trillion-dollar territory seems more a matter of “when” than “if.” Ranging from healthcare to retail, and from manufacturing to finance, the omnipresence of AI is mesmerizingly metamorphosing industries, embedding efficiency and productivity at unprecedented scales.
Embracing an ethos of relentless innovation, growth stocks, particularly those entrenched in the AI domain, are rerouting their profits back into the enterprise, igniting a combustion of perpetual advancement. Enter two behemoths, Palantir Technologies (PLTR) and Soundhound AI (SOUN), who’ve magnificently flaunted their financial prowess with robust earnings, capitalizing on the burgeoning embrace of AI technologies. This virtuous cycle has astutely inflated investor confidence, propelling their stock prices to dizzying heights throughout the year.
Let’s delve into why these potent stocks continue to shimmer as enticing prospects, beckoning eager investors to tether themselves to a future replete with promise.
The Stellar Ascendancy of Palantir Technologies
Distinguished by a monumental market cap of $81 billion, Palantir Technologies (PLTR) stands tall as a software titan renowned for its cutting-edge data analytics and AI platforms, predominantly catering to governmental agencies and corporate juggernauts.
Palantir’s meteoric rise in the markets of late has been nothing short of awe-inspiring, fueled by a string of stellar earnings performances and an augmented spotlight on AI-fueled products. The stock has sky-rocketed by a jaw-dropping 113.7% year-to-date, eclipsing the relatively modest 19.4% gain by the S&P 500 Index ($SPX).
Palantir’s Artificial Intelligence Platform (AIP) has tactfully secured a harmonious blend of governmental and commercial contracts, catalyzing revenue streams.
Ever-faithful to its roots in U.S. government interfaces, particularly with stalwarts like the Department of Defense and the intelligence cadre, Palantir has orchestrated a global expansion, inking deals with foreign nations and multinational conglomerates.
This diversification serves as a bulwark against the perils of sole reliance on U.S. governmental contracts. Exemplifying its worth in realms such as national security, intelligence analysis, and military stratagem, the AIP platform propels a continuous flow of high-margin returns.
The governmental sector commandeered a substantial 54.7% slice of the revenue pie in the second quarter, escalating by a commanding 23% year-on-year to a hefty $371 million.
In a bid to diminish dependency on governmental contracts, Palantir has ventured into commercial avenues. Its Foundry platform has found favor in sectors like healthcare, finance, and manufacturing. Collaborations with industry luminaries like IBM (IBM), Microsoft (MSFT), Oracle (ORCL), PwC, and other stalwarts have heralded an expanded clientele ensemble.
The American commercial consumer base witnessed an impressive 83% surge year-on-year. Palantir now boasts a clientele exceeding 295 entities in the U.S. alone, with the commercial segment witnessing a revenue surge of 33% in Q2.
Recording a historic GAAP profit of $0.06 per share, registering a seismic 500% leap over the analogous period last year, Palantir anticipates sustaining GAAP profits throughout the remainder of 2024.
Closing the quarter with a treasury figure of $4 billion comprising cash, cash equivalents, and short-term U.S. Treasury securities, Palantir engineered $149 million in free cash flow (FCF) in Q2, guarding a robust cash reserve. A forecasted FCF trajectory of $800 million to $1 billion for the fiscal spells imperative for fueling future growth expeditions.
Despite the noteworthy upsurge and burgeoning financial health, the Wall Street fraternity appraises PLTR stock as a tinkering “hold,” anchored largely in apprehensions regarding its elevated valuation. Currently perched at a premium valuation, the stock stands tall at 84x forward 2025 earnings.
Multiple analysts foresee a revenue ascent of 23.9% in 2024 and a further 20.3% in 2025. Earnings are anticipated to vault by 42% in 2024 and an additional 21.4% in 2025.
Given its lofty valuation, Palantir’s unwavering investments in AI, strides in the commercial expanse, and accent on profitability emblazon promising harbinger for long-term investors. The commercial sphere presents a trove of opportunities, rendering Palantir a beacon of hope for investors nursing long-term vistas.
Out of the 15 analysts tracking PLTR, two propose a resolute “strong buy,” one advocates a “moderate buy,” five incline towards a “hold,” one leans on a “moderate sell,” and six gravitate toward a “strong sell.”
Surpassing its mean price bull’s-eye of $25.69, the lofty high target of $50 illuminates a potential 35.5% upside over the forthcoming 12 months.
The Exquisite Trajectory of Soundhound AI
Finessing a role as a voice AI virtuoso, SoundHound AI (SOUN) orchestrates speech recognition and voice-centric solutions across multifarious sectors.
Rooted in the Houndify platform, which underpins SoundHound’s core technology, the company unfurls a tapestry of voice recognition, natural language processing, and speech-to-meaning capabilities. Its patrons, replete with industry titans like Mercedes-Benz, Hyundai, Samsung, Nvidia (NVDA), Qualcomm (QCOM), and Pandora, attests to the company’s sprawling dominion across heterogeneous sectors.
Donning a market cap of $1.59 billion and snugly trading beneath the $5 echelon, Soundhound emerges as a penny stock with bedazzling long-term vistas in the voice AI arena. SOUN’s stock has inscribed a staggering 137% YTD surge, eclipsing the broader market’s performance.
Total revenue in the second quarter leapfrogged by 54% year-on-year to $13.5 million, while the GAAP gross margin perched at 63%. The company’s overall subscription and booking backlog cascaded by a sumptuous $723 million vis-à-vis the preceding year’s quarter. This booking backlog alludes to the contractual revenue awaiting realization by the company in future spells.
Despite this robust revenue crescendo, Soundhound strolls in the realms of unprofitability owing to fervent investments in R&D, marketing, and strategic playouts, a common trajectory for growth stocks. In Q2, adjusted net losses tallied at $0.04 per share, albeit stepping back from the $0.07 per share abyss a year prior.
Strategic acquisitions galvanized Soundhound’s corporate saga in the quarter. This repertoire encompassed the acquisition of Amelia, a premier enterprise AI software bastion, and Allset, a digital ordering platform. Management envisions these acquisitions as vessels steering their conversational AI offerings into fresh industrial waters, concurrently incubating profitability by 2025.
While navigating strategic vistas of expansion, the company’s balance sheet touts resilience. By the quarter’s closure, its coffers nestled $201 million following a surgical $100 million debt clearance.
Furnishing a forecast that eclipses $80 million in revenue for 2024 and $150 million in 2025, analysts envisage Soundhound’s revenue bounding by 79.9% in 2024, and a further 84.2% in 2025. Further gauging anticipations foresee losses cleaving from $0.35 per share in 2024 to $0.21 against each share in 2025.
Trading at 20x forward forecasted sales for 2024, SOUN stock may appear embroidered in overvaluation. Yet, leveraging its pioneer stature, the company wields a competitive edge in the AI customer service stratosphere. Armed with strategic acquisitions and global swells spanning diverse industries, Soundhound’s financial tableau glistens enticingly.
In aggregate, SOUN stock garners a resolute “strong buy” from Wall Street apostles. Of the six analysts adorning SOUN with their insights, five raise the “strong buy” baton, with lone stalwart commanding a “hold.” The mean target of $7.58 portends an anticipated 34% upswing from prevailing levels. Furthermore, the Street’s apex target price, swelling to $9.50, envisions a magnetic 90% uptick over the subsequent 12 months.
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On the date of publication, Sushree Mohanty had no (either direct or indirect) holdings in any of the securities referred to in this article. All information and data presented here is purely for informational purposes. For more information, you can refer to the Barchart Disclosure Policy.
The opinions and perspectives articulated here represent the author’s viewpoint and does not necessarily mirror those of Nasdaq, Inc.
