Can these artificial intelligence (AI) stocks maintain their meteoric growth trajectory?

The broader US stock market has enjoyed a remarkable run since artificial intelligence (AI) emerged as a game changer in early 2023. S&P 500 it has soared more than 50% in the past two years. However, some AI actions have made these gains look like child’s play.

Since the beginning of 2023, social media giant Metaplatforms (NASDAQ: META) has soared more than 400%, a mind-blowing performance for such a large company. SoundHound AI (NASDAQ:SOUN)an emerging player in audio AI technology, has outperformed it with nearly 700% returns. Surprisingly, software company Palantir Technologies (NASDAQ: PLTR) it has surpassed them all, galloping more than 900% in just 24 months.

These meteoric growth trajectories are not unique to the stock market. So do they have the extraordinary fundamentals to justify their returns? Or, more importantly, can they continue? The answer is a mixed bag.

Much of what you’ve seen about AI has involved text-based prompts, but conversational AI—the ability to talk to it (and have it respond)—is central to how AI can affect everyday life. SoundHound AI specializes in audio and conversation-based AI technology. This is more complex because it involves the intelligence to think and generate responses, in addition to the intelligence to understand and translate an audio message into machine data.

SoundHound AI got its start in the automotive industry. You may be familiar with speaking commands to your vehicle while driving. The company has since expanded into the restaurant industry, powering conversational AI for ordering and ordering. However, the potential for expansion is enormous, including almost any application with human agents. Consider 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 on a small scale; Third quarter revenue was just $25.2 million. Meanwhile, the stock has a business value of $5.1 billion, versus 2025 revenue estimates of $164 million. That’s a ratio of 31, which makes SoundHound very expensive today. It could be difficult for the stock to continue at its current pace, so potential shareholders should look for a pullback before buying.

AI software will affect almost every industry in the future, so there’s a huge opportunity ahead for Palantir Technologies. The company’s AIP platform for developing and deploying AI applications has lit a fire under the business. Revenue growth has accelerated for several quarters, and the company still only has 629 commercial customers. There are hundreds of thousands of large companies worldwide (potential customers), so Palantir’s long-term ceiling is very high.

Unlike many speculative AI stocks, Palantir is already very profitable. The company turns 37% of its revenue into free cash flow, adding to a balance sheet with $4.5 billion and zero debt. Also, the business is comfortably profitable under generally accepted accounting principles (GAAP). Palantir’s rise should surprise no one; is a highly profitable and fast-growing AI innovator.

Palantir’s only problem is that its stock has gotten too far ahead of the business. The stock price has grown over 900%, but the company has not. Today, Palantir trades at a PEG ratio of 5. It’s an excellent business, but I don’t like paying beyond PEG ratios of 2 to 2.5 even for the best stocks. Investors probably shouldn’t expect the stock to continue rising the way it has until the valuation cools a bit.

Social media giant Meta Platforms is the biggest company on this list (by far), with a market cap of $1.5 trillion. Even so, the company has the financial resources to do so. Meta generates more than $156 billion in annual revenue and more than $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 massive 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 get more for their ad spend, increasing Meta’s pricing power and driving core business growth.

The stock’s PEG ratio is just 1.3 today, so Meta’s valuation could expand further before it becomes a concern. Meanwhile, analysts estimate that Meta will grow revenue by 18% annually over the long term. Investors may not see another 400% run over the next two years, but 40% to 50% seems possible. This could keep Meta on its market-beating trajectory for a while longer.

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Randi Zuckerberg, former CMO and Facebook spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Justin Pope 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 one disclosure policy.

Can these artificial intelligence (AI) stocks maintain their meteoric growth trajectory? was originally published by The Motley Fool

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