Nearly every investor has a goal of finding the next Nvidia or Palantir for 2025. They want to find the next stock primed for a breakout and capitalize on it throughout the year. If you're looking for ideas, I've got three that top the list of potential breakout candidates for 2025.
SoundHound AI
SoundHound AI (NASDAQ: SOUN) may be familiar to some investors, as its stock has risen over 400% this year. However, 2025 is shaping up to be a huge year for this artificial intelligence (AI) player.
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Management expects 2025 revenue to be between $155 million and $175 million. Considering that 2024 revenue is projected to end up between $82 million and $85 million, this indicates revenue should double. Furthermore, the company expects to achieve adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) profitability by the end of 2025. Now, that's not true profitability, as it subtracts out a lot of important expenses like taxes and stocked-based compensation, but it is an important milestone for a tech company reaching scale.
SoundHound's products are starting to be used by a wider variety of industries. If you consider the sheer amount of tasks accomplished by a customer talking to an employee that could be automated, then you get an idea of the scale that SoundHound can reach.
One potential hurdle SoundHound faces is its very high valuation. SoundHound's stock is running up heading into the new year as investors position their portfolios for 2025. With the stock trading for 46 times sales, it will need to exceed expectations each quarter to maintain its valuation. But if it continues to excel, I'd expect another strong performance from SoundHound in 2025.
dLocal
dLocal(NASDAQ: DLO) is a bit more obscure of a business. This fintech company provides payment processing plug-ins to its clients so that they can do business in emerging markets like India, Brazil, and South Africa. Among its client list are giants like Spotify Technology, Amazon, and Shopify.
CEO Pedro Arnt joined the company after holding the CFO position at Latin American e-commerce giant MercadoLibre (NASDAQ: MELI) for 12 years. This is a home-run hire who can lead an already successful business to new heights.
In the third quarter, dLocal's total payment volume increased 41% year over year to $6.5 billion, and it converted $186 million into revenue (up 13% year over year). Earnings fell from a year ago, but dLocal is still working on evolving its business from its previous state (which is why a new CEO was hired).
dLocal trades for a reasonable 24 times forward earnings, so there isn't a ton of hype surrounding the stock. However, if it can kick-start its growth again, dLocal could break out in 2025.
UiPath
UiPath's (NYSE: PATH) stock has been the victim of generative AI hype. UiPath makes robotic process automation (RPA) software, which gives users the tools to automate processes that they do regularly.
However, the market has crushed UiPath stock as it views it as a company that could be harmed by generative AI rollout. This is an extreme assessment, as UiPath has generative AI features in its platform. Furthermore, not every task needs a fancy AI solution. Sometimes, a low-code program produced by UiPath will do.
Still, that doesn't diminish the fact that UiPath's stock is down around 40% in 2024. However, the business is still in good shape, and its annual recurring revenue (ARR) rose 17% year over year to $1.61 billion during its third quarter of fiscal year 2025 (ending Oct. 31).
UiPath's stock has been significantly beaten up, and its valuation has reached bargain-bin levels.
At around 6 times sales, it's priced fairly cheap for a software stock and could have huge potential when UiPath consistently breaks even. It was close in Q3, with its profit loss margin coming in at 3%. It will become a successful investment if UiPath can flip into profitability mode and maintain a mid-teens ARR growth rate.
It's on the right path, with management guiding for 14% ARR growth in Q4 and its non-GAAP (adjusted) operating income doubling from Q3 to Q4. As a result, I think UiPath could have a much better 2025, making it a strong potential breakout stock.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keithen Drury has positions in Amazon, DLocal, MercadoLibre, Shopify, and UiPath. The Motley Fool has positions in and recommends Amazon, MercadoLibre, Nvidia, Palantir Technologies, Shopify, Spotify Technology, and UiPath. The Motley Fool recommends DLocal. The Motley Fool has a disclosure policy.
