In the year Since the emergence of artificial intelligence (AI) as a game changer in early 2023, the broad US stock market has had a spectacular run. S&P 500 Over the past two years, the rocket has declined by more than 50%. However, some AI stocks have made those benefits seem like child’s play.
From the beginning of 2023, the social media giant Meta forums(NASDAQ: META ) It has grown over 400%, jaw dropping for such a large company. SoundHound AI(NASDAQ:SOUN)An emerging player in audio AI technology, it topped the charts with nearly 700% returns. Surprisingly, the software company Palantir Technologies(NASDAQ: PLTR ) In just 24 months, it has risen more than 900%, topping all the charts.
These meteoric growth trends are not typical of the stock market. So, do they have specific fundamentals to justify their return? Or, more importantly, can you move on? The answer is a mixed bag.
Most of what you’ve seen about AI has included text-based questions, but conversational AI, the ability to talk to it (and have it talk back), is fundamental to how AI impacts everyday life. SoundHound AI specializes in audio and speech-based AI technology. That’s more complex because it involves the ability to think and generate intelligent responses, as well as the ability to understand and translate voice prompts into machine data.
SoundHound AI has started in the automotive industry. You may become familiar with speaking commands to your vehicle while driving. The company has since expanded into the restaurant industry, powering conversational AI for drive-thru and ordering. However, the potential for expansion is huge, including any application with human agents. Think about call centers, retail, and customer service in many industries.
In the third quarter, the company’s revenue grew 89 percent year-over-year, and management raised its guidance for the fourth quarter. Unfortunately, that progress is on a small scale; Q3 revenue was just $25.2 million. Meanwhile, the stock has Corporate value $5.1 billion, compared to a 2025 revenue estimate of $164 million. That’s a ratio of 31, making SoundHound the most expensive today. The stock may be difficult to sustain at its current pace, so prospective investors should look back before buying.
AI software will impact all industries in the future, so there is a huge opportunity ahead of Palantir Technologies. The company’s AIP platform is available for developing and deploying AI applications It lit a fire under the business.. Revenue growth has accelerated for several quarters, and the company still only has 629 business customers. There are hundreds of thousands of large enterprises (potential customers) around the world, so Palantir’s long-term ceiling is incredibly high.
Unlike many speculative AI stocks, Palantir is already highly profitable. The company is turning 37 percent of revenue into free cash flow, adding $4.5 billion to its balance sheet and zero debt. Additionally, the business is comfortably profitable by generally accepted accounting principles (GAAP). The rise of Palantir should surprise no one; It is the most profitable, fastest growing AI developer.
Palantir’s only problem is that its shares are too far out of business. The stock price rose over 900%, but the company did not. Today, Palantir trades at a P/E ratio of 5. It’s a great business, but I don’t like paying even the best stocks with a PEG ratio of 2 to 2.5. Investors probably shouldn’t expect the stock to keep rising as it is until valuations ease a bit.
Social media giant MetaPlatform is the biggest company on this list with a market capitalization of $1.5 trillion (by far). Still, the company has the financial capacity to support it. Meta generates more than $156 billion in annual revenue and more than $50 billion in cash flow. Its primary business is digital advertising, monetizing billions of people using Facebook, Instagram, WhatsApp and Threads.
Meta is deeply involved in AI technology, including massive data center investments, an open source AI model (LAMAN) and a full business unit for AI and Metaverse products and services (Reality Labs). Meta has already developed AI tools to help advertisers get more from their ad spend, increase Meta’s pricing power, and drive growth in its core business.
The stock’s PEG ratio is only 1.3 today, so it could widen further before the meta’s valuation becomes a concern. Meanwhile, analysts estimate that Meta will grow revenue by 18 percent annually over the long term. Investors may not see another 400% run in the next couple of years, but 40 to 50% seems possible. That could keep the meta on its market-beating trajectory for some time.
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Randy Zuckerberg, former director of market development and Facebook spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, is a member of the Motley Fool’s board of directors. Justin Bishop It has no place in the said shares. He has positions in the Motley Fool and recommends Meta Platforms and Palantir Technologies. The Motley Fool has Disclosure Policy.
