The broader US stock market has enjoyed a remarkable run since the emergence of artificial intelligence as a game-changer in early 2023. Standard & Poor’s 500 It has risen by more than 50% over the past two years. However, some AI stocks made these gains look like child’s play.
Since the beginning of 2023, the social media giant Meta platforms(NASDAQ:META) It’s up over 400%, an amazing return for such a large company. SoundHound AI(NASDAQ:SOUN)a voice AI technology startup, led with nearly 700% revenue. Surprisingly, the software company Palantir Technologies(NASDAQ:PLTR) He topped them all, running over 900% in just 24 months.
These meteoric growth paths are not typical of the stock market. So, do they have the extraordinary fundamentals to justify their returns? Or more importantly, can they keep going? The answer is a mixed bag.
Much of what I’ve seen about AI has involved text-based prompts, but conversational AI, the ability to talk to it (and have it talk back), is fundamental to how AI will impact everyday life. SoundHound AI specializes in voice and conversation-based AI technology. This is more complex because it includes the intelligence needed to reason and generate responses, as well as the intelligence needed to understand and translate the voice prompt into machine data.
SoundHound AI started in the automotive industry. You may be familiar with saying commands to your car while driving. The company has since expanded into the restaurant industry, leveraging conversational AI for ordering and ordering. However, the scaling potential is enormous, including almost any application with human factors. Think of call centers, retail, and customer service in many industries.
The company’s revenue grew 89% year over year in the third quarter, and management raised guidance for the fourth quarter. Unfortunately, this growth is occurring on a small scale; Third-quarter revenue was just $25.2 million. Meanwhile, the stock has Enterprise value With a value of $5.1 billion, compared to 2025 revenue estimates of $164 million. That’s a ratio of 31, which makes the SoundHound expensive today. It may be difficult for the stock to continue at its current pace, so potential shareholders should look for a pullback before buying.
AI software will impact almost every industry in the future, so there is a huge opportunity for Palantir Technologies. The company owns the company’s AIP platform for developing and deploying AI applications A fire was lit under the works. Revenue growth has accelerated for several quarters, and the company still has just 629 business customers. There are hundreds of thousands of large companies worldwide (potential customers), so Palantir’s long-term ceiling is dramatically high.
Unlike many speculative AI stocks, Palantir is actually highly profitable. The company converts 37% of its revenue into free cash flow, adding to its balance sheet of $4.5 billion and no debt. Additionally, the business is comfortably profitable under Generally Accepted Accounting Principles (GAAP). Palantir’s rise should surprise no one. It is a highly profitable and fast-growing AI innovator.
Palantir’s only problem is that its stock is way ahead of the company. The stock price rose more than 900%, but the company did not. Today, Palantir trades at a PEG ratio of 5. That’s an excellent business, but I don’t like paying beyond PEG ratios of 2 to 2.5 for even the best stocks. Investors probably shouldn’t expect the stock to continue rising as it has until valuation cools down a bit.
Social media giant Meta Platforms is the largest company on this list (so far), with a market capitalization of $1.5 trillion. However, the company has the financial resources to support it. Meta generates over $156 billion in annual revenue and over $50 billion in cash flow. Its core business is digital advertising, monetizing the billions of people who use Facebook, Instagram, WhatsApp and Threads.
Meta is deeply involved in AI technology, including significant investments in data centers, an open source AI model (Llama), and an entire business unit dedicated to AI and Metaverse products and services (Reality Labs). Meta has already developed AI tools to help advertisers realize more of their ad spend, increasing Meta’s pricing power and driving growth in the core business.
The stock’s PEG ratio is just 1.3 today, so the Meta valuation could expand further before it becomes a concern. Meanwhile, analysts estimate that Meta will grow earnings at 18% annually over the long term. Investors may not expect another 400% increase over the next two years, but 40% to 50% seems possible. This could keep Meta on its market outperforming trajectory for a longer period.
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Justin Pope He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Palantir Technologies. The Motley Fool has Disclosure policy.
