The U.S. stock market ended 2024 on a high note, with the benchmark S&P 500 index up by 23.3%. That came on the heels of its 24.2% rise in 2023, so overall, the S&P was up by 53.2% since 2022 -- one of its best two-year stretches of the 21st century. It is indisputable that technology stocks, especially those connected to artificial intelligence (AI), played a significant part in this strong rally.
Not surprisingly, many high-quality AI stocks have risen to sky-high valuations. However, there are still gains to be made in this trend. If you have a little money available to invest right now that you don't need to cover your bills or for other contingencies -- even if it's as little as $200 -- purchasing these three AI stocks now could strengthen your portfolio over the long haul.
Palantir
Though it trades at a lofty 65.7 times trailing 12-month sales, Palantir Technologies(NASDAQ: PLTR) remains a top stock to buy in 2025 for several compelling reasons. The data mining and analytics company's strength in advanced AI technologies and its long-term relationships with government agencies and large enterprises have been at the heart of its exceptional growth in recent quarters.
In the third quarter, its revenue jumped 30% year over year to $729 million while its operating margin was a solid 38%. The company also generated free cash flow of $435 million.
The rapid adoption of Palantir's Artificial Intelligence Platform (AIP) drove the 39% year-over-year expansion of the company's customer base to 629 in the third quarter. That included a 77% jump in commercial customers. Unlike several competing AI platforms that focus mostly on model development, AIP has prioritized developing ontologies -- i.e., frameworks that establish relationships between digital assets and real-world applications.
Hence, rather than expending resources on models, which are getting commoditized, Palantir's strategy has helped it to rapidly implement AI solutions in production environments across use cases.
For one final point in the stock's favor, Palantir was also recently added to the S&P 500 index. Considering its multiple tailwinds and its increased liquidity, the stock could appreciate significantly in the coming months.
SoundHound AI
Voice AI specialist SoundHound AI(NASDAQ: SOUN) offers a lot to be excited about these days. That's despite the stock's extremely rich price-to-sales (P/S) ratio of 107, which is more than triple its 3-year average multiple of about 32. Shares soared by a whopping 836% in 2024 on the back of the company's improving operational and financial strength, as well as analysts' upgrades.
In the third quarter, its revenue jumped 89% year over year to $25.1 million. Management expects to report revenue in the $82 million to $85 million range for 2024 and has guided for a range of $155 million to $175 million for 2025. Furthermore, the company expects to convert a bookings backlog worth more than $1 billion into revenue in the next six years.
SoundHound has also succeeded in reducing its overreliance on a few customers. While a single customer contributed almost 72% of its revenue in 2023, that same client accounted for only 12% of revenue in 2024's third quarter. Plus, while its top five customers contributed 90% of revenues in 2023, they accounted for only 33% of its 2024 third-quarter revenue.
The rapid adoption of SoundHound's voice AI and conversational intelligence solutions across the restaurant and automotive industries, among others, has helped reduce the company's customer concentration risk.
SoundHound also differentiates itself from competitors with its proprietary Polaris foundational model, which leverages billions of real conversations and millions of hours of audio across dozens of languages, collected over the past two decades. Polaris is helping improve the accuracy of its offerings while also controlling hosting costs. Now powering one-third of the company's AI interactions for restaurant industry clients, Polaris could emerge as a strong growth catalyst in the coming years.
The company is not without risks as an investment. In addition to its elevated valuation, SoundHound has a cash balance of just $136 million, which seems tight relative to its high cash burn rate. The company posted a net GAAP loss of nearly $92 million in the first three quarters of 2024. Considering these challenges, astute investors would be well advised to pick up only a small stake in this stock, allowing them a chance to participate in its upside potential, but limiting their downside risk.
UiPath
With a 35.8% share in the robotic process automation (RPA) market, UiPath(NYSE: PATH) is a dominant player in its space. Not surprisingly, the company stands to be one of the key beneficiaries of the explosive growth in that market, which Grand View Research forecasts will expand at a compound average rate of 39.9% from 2023 through 2030.
UiPath has built an extensive partner ecosystem that includes technology giants such as Amazon, Microsoft, SAP, and Alphabet, and this has opened it up to new business expansion opportunities. Furthermore, the company differentiates itself from competition by offering low-code tools for automation across both legacy systems and new applications, which helps its clients avoid vendor lock-in. Plus, UiPath offers enterprise-grade governance services to manage automation agents, people, and models.
It's also helping clients build, maintain, and deploy automation agents -- thereby targeting the greenfield agentic automation space. Agentic automation involves the use of software agents that can take autonomous actions based on insights provided by large language models, generative AI technologies, large action models, and other AI tools.
Market research firm IDC expects the agentic labor automation market to expand from zero in 2023 to almost $4.1 billion by 2028. UiPath's agentic automation offering has already generated strong customer interest -- more than 1,000 organizations have already signed up for private previews of this agent builder.
Although the company's stock crashed by about 48% in 2024 due in part to leadership changes and reduced revenue guidance, the rapidly evolving agentic automation opportunity could drive a revival in the share price in the coming years.
UiPath's recent financial and operational numbers have also been quite healthy. As of the latest quarter, ended Oct. 31, the company had a solid balance sheet with $1.6 billion in cash and zero debt. It also posted a solid 17% year-over-year jump in annual recurring revenue to $1.6 billion and achieved a 97% customer retention rate.
Given the backdrop of its healthy business and evolving opportunities, UiPath could be an appealing pick for retail investors.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
Nvidia:if you invested $1,000 when we doubled down in 2009,you’d have $374,613!*
Apple: if you invested $1,000 when we doubled down in 2008, you’d have $46,088!*
Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $475,143!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, Palantir Technologies, and UiPath. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
