What's been the most important driver behind the continued bull market? A good case can be made that it's artificial intelligence (AI). Each member of the so-called "Magnificent Seven" stocks is heavily focused on AI. And those stocks led the way for the S&P 500's big gains in 2023 and 2024.
But the biggest AI winners can be found outside of the Magnificent Seven. These three AI stocks more than quadrupled in 2024.
4x gains and then some
Palantir Technologies (PLTR 1.61%) became one of the most heralded "Trump trades" in recent months. The company develops AI and data analytics software, with the U.S. government ranking as its biggest customer. Palantir's shares soared 340% last year with much of the gain coming after the election on Nov. 6, 2024. Many investors expect its sales to jump with the Trump administration prioritizing immigration enforcement, national security, and improving the efficiency of government agencies.
However, that wasn't the only factor behind Palantir's big gain. Other catalysts for the stock in 2024 include its addition to the S&P 500 and Nasdaq-100 indexes.
Another company that markets AI-powered data analytics software enjoyed an even better year than Palantir. Shares of MicroStrategy (MSTR 1.77%) skyrocketed 359% in 2024. Some of this performance can be attributed to investors' enthusiasm about MicroStrategy's software business. The biggest attraction for the stock, though, has been the company's Bitcoin (BTC 1.59%) strategy. MicroStrategy is the largest corporate holder of Bitcoin and uses the cryptocurrency as its primary treasury reserve asset.
While Palantir and MicroStrategy saw their share prices more than quadruple last year, their gains paled in comparison with voice AI software developer Soundhound AI (SOUN 0.58%). Its stock vaulted 836% higher in 2024.
Soundhound's stock momentum accelerated after the company reported its third-quarter results in November. Revenue soared 89% year over year to $25.1 million -- a record haul. Soundhound also achieved tremendous success in diversifying its customer base, with 12% of revenue generated by its largest customer in Q3 versus 72% in the prior-year period.
Wall Street's favorite for 2025
Will the good times continue to roll in 2025 for these three high-flying AI stocks? Wall Street analysts aren't bullish about two of them.
The consensus 12-month price target for Palantir is around 35% lower than its current share price. Valuation seems to be analysts' top concern with the stock. Palantir's shares trade at a forward price-to-earnings ratio of around 143.
Wall Street isn't enthusiastic about Soundhound's prospects in the new year, either. The average analysts' 12-month price target is 11.5% below Soundhound's current share price. However, this stock doesn't enjoy the broad analyst coverage that Palantir does.
That leaves MicroStrategy as the lone member of the group analysts think will move higher in 2025. The average price target of the nine analysts surveyed by LSEG reflects an upside potential for the stock of around 42%. Three of those analysts recommend MicroStrategy as a "strong buy" with the other six rating it as a "buy."
Are the analysts right?
Wall Street price targets are only guesses. No one knows what the price for any stock will be 12 months in the future. However, I suspect the analysts are generally right about at least one of these three AI stocks.
Palantir's growth, while impressive, doesn't appear to be robust enough to justify its premium valuation. Although I wouldn't bet on the stock falling 35%, it wouldn't be surprising if it pulled back significantly.
On the other hand, my hunch is that Soundhound AI could deliver positive gains in 2025. I don't look for the stock to more than quadruple as it did last year. But Soundhound is making solid progress in signing new customers in the restaurant and automotive industries.
As for MicroStrategy, everything hinges on Bitcoin. I understand why analysts are bullish. Trump's second presidential term could usher in the most crypto-friendly policies of any administration ever.
My main reservation about the optimistic price target for MicroStrategy is that it's impossible to know what a reasonable price for Bitcoin is. Maybe investors will think the cryptocurrency is worth a lot more by the end of 2025; maybe not. I think MicroStrategy could be the huge winner analysts think it will be, but it's also possible the stock could be the worst performer of these three stocks in 2025.
