Palantir (NYSE:PLTR) is enjoying a moment in the spotlight as five consecutive profitable quarters point to a strong and fruitful future ahead, especially compared to many other floundering artificial intelligence (AI) stocks. Underperformance is a major problem with AI investing today. Many companies are using buzzwords or throwing an OpenAI ChatGPT wrapper onto a poorly planned product and calling it “innovation.”
That’s why finding the next Palantir among AI stocks is a tricky proposition. But using Palantir as a roadmap can help. Investors should look to companies operating within niche segments that are delivering otherwise inaccessible value to customers and are able to pivot toward a wider client base.
In Palantir’s case, the AI-centric company works to un-silo data to draw insight and drive decisions. It is primarily focused on government contracting and is now expanding to greater commercial dominance.
Do the same thought exercise for these AI stocks and you’ll see why they may be the next Palantir.
Chegg (CHGG)
Chegg (NYSE:CHGG) stands out among AI stocks as the next Palantir of a unique, less-addressed market: Education Technology (EdTech). The company has evolved from its textbook rental origins to a comprehensive platform that integrates AI for homework assistance and personalized learning tools. These innovations point toward a future where education relies on AI for day-to-day learning. This makes Chegg the next Palantir of EdTech based on common ground. Like Palantir, Chegg is using AI to deliver customized solutions to the end user (in this case, the education system or individual students).
Chegg shares are somewhat beaten down today after a poor 2023 showing, marked by a 7% revenue decrease year-over-year (YOY) and slipping subscription rates. But, as the company right-sizes its operational focus and moves firmly away from its research and development phases, expect its already high 68% gross margin to increase. Management expects Q1’s gross margin to be in the 74% range – not bad for a small-cap AI stock still finding its place in the market.
Chegg also sets itself apart among AI stocks with its shareholder-friendly initiatives, particularly its $200 million share buyback program. This demonstrates a unique balance between aggressive AI growth and financial maintenance through the maturity of its other business segments.
UiPath (PATH)
UiPath (NYSE:PATH) is the next Palantir of office administration. It’s not too exciting, but UiPath, like Palantir, tops lists of Cathie Wood’s favorite stocks. Similar to Palantir, Cathie Wood thinks UiPath is worth investing in based on how its models unlock existing data that companies aggregate but struggle to operationalize.
In an interview, she said that UiPath is part of a software-based approach to AI investing because “for every dollar of hardware, we expect 8 to 20 times the amount of software.” Additionally, she emphasizes that “practically every stock in our portfolios [is] especially focused on proprietary data,” and UiPath, in particular, “has proprietary data associated with many companies around the world and the solutions they are evolving to automate these mundane processes.”
Other investors are also excited about UiPath’s potential among AI stocks, saying, “The weaving of Generative AI into its broadened automation platform is driving strong adoption amongst enterprises.” This creates another Palantir linkage, as Palantir increasingly focused on enterprise clients to diversify away from government contracting exclusivity.
SoundHound AI (SOUN)
SoundHound AI (NASDAQ:SOUN) is a small-cap AI stock that may not stay small for long. The company is bringing AI into oft-overlooked fields within voice recognition, like helping restaurant operations improve order flow through AI voice assistance. Voice recognition is a small but growing field, and as AI stocks like SOUN show us, the total addressable market is as wide as a company can adapt its tech to serve.
Nvidia (NASDAQ:NVDA) agrees. This week, the AI stock juggernaut announced its multimillion-dollar stake in SoundHound, giving shares an appreciable boost. Nvidia is well-known for investing in promising, early-stage AI companies like SoundHound and Recursion Pharmaceuticals (NASDAQ:RXRX). This filing comes on the heels of SoundHound’s 2017 $75 million investment round, to which Nvidia also contributed. This means SoundHound has long been on Nvidia’s radar, even before the current AI boom.
Ongoing endorsement from the undisputed overall AI leader indicates that SoundHound has a bright future among AI stocks and could prove to soon be the next Palantir of voice recognition software.
On the date of publication, Jeremy Flint did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.