Uncovering the Hidden Gem in AI Stocks
A Surprising 875% Surge
SoundHound AI’s shares skyrocketed by nearly 875% in 2024, driven by its record-breaking third-quarter revenue performance and increasing adoption of its conversational AI solutions by major brands across industries. The company’s stock also received a significant boost from a bullish report by Wedbush analyst Dan Ives, who raised the company’s target price from $10 to $22.
Palantir’s Impressive Gains
Meanwhile, Palantir Technologies’ stock posted remarkable gains of almost 385% in 2024, driven by unprecedented demand for its Artificial Intelligence Platform (AIP), strong financial performance, lucrative partnerships, and inclusion in the benchmark S&P 500 index.
A Risk-Adjusted Comparison
While SoundHound AI recorded a much stronger share price performance than Palantir, is it a better or even a comparable investment on a risk-adjusted basis? Let’s dive deeper to find out.
Diversifying Revenue Streams
SoundHound AI has made significant strides in reducing its overreliance on a small customer base. The company’s largest customer accounted for 72% of revenue in 2023, but this exposure was reduced to only 12% in the third quarter of 2024. Furthermore, the top five customers now account for less than 33% of the company’s revenue, far lower than the 90% revenue exposure in 2023.
Momentum in the Automotive Sector
SoundHound is seeing increasing momentum in the automotive sector, particularly in the electric vehicle (EV) space. The company signed contracts with four new EV players in the third quarter, two of which are using conversational intelligence solutions in real-time. SoundHound expanded its contract with Stellantis across multiple markets, with seven of the latter’s brands using its generative AI-enhanced digital assistant, SoundHound Chat AI.
Chinese Market Opportunities
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 with an estimated size of $376.4 billion in 2024, the Chinese EV market can be a major growth catalyst for SoundHound AI in the coming years.
Market Leadership in Phone Ordering Solutions
SoundHound is a market leader for phone ordering solutions in the restaurant industry. The company’s phone ordering solutions handled over 100 million customer interactions. Multiple prominent brands are adopting SoundHound’s drive-thru and phone ordering system.
AI Agent Customer Service Solutions
SoundHound’s AI agent customer service solutions have found a solid footing across industries like financial services, healthcare, insurance, and retail. This business segment accounts for over half of the company’s revenue.
Competitive Advantage with Polaris
SoundHound AI built its multimodal, multilingual Polaris foundation model and trained it on billions of real conversations and over 1 million hours of audio across multiple languages. The model has helped improve accuracy and reduce hosting costs, providing a solid competitive advantage for a conversational artificial intelligence company. Polaris is already powering almost one-third of all AI interactions for the company’s restaurant customers.
Financial Performance and Outlook
SoundHound AI’s financial numbers speak volumes about its improving business momentum. The company expects its 2024 revenue to be between $82 million and $85 million and 2025 revenue to be in the range of $155 million to $175 million. The company expects to be adjusted EBITDA profitable by the end of fiscal 2025. SoundHound AI also boasts a strong balance sheet with $136 million in cash and $43.8 million in debt at the end of the third quarter.
Comparing SoundHound AI and Palantir
Although SoundHound is an exceptional AI-powered company, its financial strength and target addressable markets differ significantly from Palantir’s. SoundHound’s revenue jumped by 89% year over year to $25.1 million, while Palantir’s revenue was up by 30% year over year to $726 million. While the top-line growth rate of the former is higher, revenue is also much smaller on an absolute basis.
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