AI Stock Battle: Palantir's Surge and Emerging Competitors in the Enterprise AI Market

These 2 AI Stocks Are Vying to Be the Next Palantir. Are Either of Them Buys? | The Motley Fool

Palantir Technologies (PLTR 0.44%) is one of the greatest success stories on the stock market in recent years. Shares of the secretive data analytics company are up nearly 1,700% since the start of 2023, an incredible feat for a company that had been largely forgotten following a crash after its 2020 IPO and the bear market of 2022. Palantir's resurgence owes in large part to its Artificial Intelligence Platform (AIP), which launched in 2023. The platform accelerates the power and utility of Palantir's software suite, allowing users to easily find and organize the information they need by using AI agents and a chat-based interface. The software-as-a-service (SaaS) company benefits from a long history of serving the government, primarily focusing on defense and counterterrorism, which allowed it to hone and improve its product. Since the launch of AIP, its U.S. commercial business soared, showing its technology is gaining adoption among enterprise customers, a huge addressable market for Palantir. Following in the footsteps of the breakout software stock, other companies are fashioning themselves as the next Palantir. Let's take a look at two of them to see if they're the real deal. Like Palantir, C3.ai (AI 1.26%) is an AI-focused SaaS company that gets much of its business from the government. Its main focus is providing AI-based applications that help its customers handle things like demand forecasting and inventory management. Also like Palantir, C3.ai reported accelerating revenue growth in recent quarters. Both companies capitalized on the increasing demand for AI enterprise software, a bullish trend for the sector. C3.ai also works closely with the Department of Defense. In its most recent quarter, the company announced several new and expansion agreements with the department and branches of the military, such as the Army and Air Force. The company is also diversifying its revenue in much the same way that Palantir has. For example, over the last year, federal, defense, and aerospace went from 49% of its total bookings to 33.3%, and now trails manufacturing as its largest industry. C3.ai is much smaller than Palantir, as its revenue is just about a tenth of what Palantir is bringing in. The AI for the Enterprise company is also still unprofitable, while Palantir made the transition to profitability over the last year, with profits soaring. For its fiscal 2025, C3.ai is targeting an adjusted operating loss of $105 million to $135 million, which compares to an adjusted loss of $94.9 million in fiscal 2024, showing that that figure is moving in the wrong direction. However, it does indicate that C3.ai's margins are improving. The other Palantir wannabe that got a lot of attention from investors is BigBear.ai (BBAI 0.41%). BigBear.ai provides a similar service to C3.ai and Palantir, as it offers data analytics software and other AI tools to the Defense Department and other customers. In fact, the stock just soared recently after it won a new government contract. The company specializes in Edge AI decision intelligence, providing AI software for edge devices that allows its customers to process millions of points of data to make forecasts and find anomalies. It also offers cybersecurity, as well as supply chain and logistics software. BigBear.ai's revenue growth has been more erratic than that of Palantir and C3.ai, but its most recent report offered investors some encouragement. Revenue in the third quarter increased 22.1% to $41.5 million, following some losses earlier in the year. Not only is BigBear.ai growing its revenue more slowly than Palantir and C3.ai, but its gross margin is much lower, coming in at just 25.9% in the third quarter. That's unusually low for any SaaS company, which typically relies on high gross margins and then spends most of its revenue on sales and research and development for new products. BigBear.ai's operating costs are lower than you might expect, however, and the company reported a generally accepted accounting principles (GAAP) operating loss of $10.5 million in the third quarter, which seems reasonable for a company of its size. Of these two stocks, C3.ai looks like the better buy. The company reported seven straight quarters of accelerating revenue growth. It's diversified away from its base serving the federal government and related industries. Its generative AI platform is gaining traction, and it's more than double the size of BigBear.ai based on revenue. BigBear.ai has potential as well, but its low gross margins seem like a headwind to its growth, as it limits the money it can reinvest in the business and its revenue growth has been more erratic over the last two years. Both of these AI stocks trade at a price-to-sales ratio of around 12, making them significantly cheaper than Palantir, though Palantir is now solidly profitable. I wouldn't expect either one of them to approach Palantir's blowout performance over the last two years, but of the two, C3.ai looks like it has a better chance to outperform and deliver multibagging gains. It's still a high-risk stock, given its lack of profitability, but its accelerating revenue, diversification, and improving margins are all positive signs.

Pair Trade: Fade Palantir and Buy This Fantastic AI Stock Trading at a Discount | The Motley Fool

Although there have already been a few obstacles this year, technology and artificial intelligence stocks have been on a tear for nearly 2.5 years. Of this group, few have excelled more than the decision-making AI company Palantir (PLTR 4.24%). From its mysterious and exciting work for the Department of Defense to its impressive quarterly earnings results, retail and institutional investors can't buy enough of this stock. Since going public in October of 2020, Palantir is up an incredible 1,105% and trades at a mind-boggling 200 times forward earnings. The company's market cap is now over $250 billion. While the run has been astounding, I think it's time for investors to cash in their winnings. As a pair trade, I'd recommend fading Palantir and buying this fantastic AI stock instead, which trades at a big discount. I don't think anyone doubts that Palantir is an impressive company. It essentially bridges the gap between complex AI language models and human analysis so people working inside government agencies and businesses can gather and leverage data like never before, which can then be used to help the organization achieve its goals, whether that's for national security or optimizing a part of its business. Government clients use Palantir's Gotham system to collect different types of data from different sources. AI then pulls together insights, outlines potential scenarios, and offers potential courses of action, all in real-time to help with decision-making. Palantir also launched five-day boot camps for potential business customers, which helped these businesses identify issues and then showed how Palantir's solutions could be used to offer solutions to these problems. This initiative turned out to be very successful. Recently, Palantir reported blowout fourth-quarter earnings, in which the company beat on earnings and revenue and issued better-than-expected guidance. The stock zipped another 25% higher. While it's all impressive, investors should always remember that great businesses can trade at bad prices, and bad businesses can trade at attractive ones. Jefferies analyst Brent Thill recently issued a research note, more than doubling his price target on Palantir from $28 to $60, but Palantir already trades at around $111 (as of Feb. 9). Thill noted that management's revenue guide calls for 31% growth, 2 percentage points more than what it did in 2024. For Palantir to keep trading at its current valuation, Thill estimates the company would need to grow 50% over four years and trade at 18 times the 2028 calendar year projected revenue. It's always possible that Palantir will grow into its current valuation, but the risk-reward trade-off has gotten significantly worse, making the company more vulnerable to sell-offs. Investors have seemingly snapped up shares in any company that proves it has an AI edge. However, the market has only recently had the opportunity to own Nebius Group (NBIS 1.81%), an AI infrastructure company that only rejoined the Nasdaq in October of last year. The assets that Nebius owned were a part of the Russian search giant Yandex. However, after Russia initially invaded Ukraine, certain sanctions pushed Yandex off the Nasdaq. Through a complex process, Yandex would eventually split off four AI businesses into what is now the Dutch-based Nebius. Those businesses include cloud, data labeling, edtech, and autonomous vehicles. The most prominent of the businesses is its AI cloud business, which some describe as AI-as-a-service. Companies wading into the world of AI need graphics processing units (GPUs), circuits that can compute a tremendous amount of calculations simultaneously. This makes them ideal for training large language AI models. Nebius has a lot of this infrastructure in massive data centers and then rents out GPU space to companies building AI programs that don't want to build all of the necessary infrastructure needed to support it. Nebius got a huge endorsement when it raised a $700 million private round of financing that included Nvidia as one of the main investors. Nebius, on its website, says its clients will have access to Nvidia's cutting-edge Blackwell chips. Nvidia likely sees companies like Nebius as a way to grow the overall market and potentially expand its own client base as well. In terms of financials, Nebius had close to $2.3 billion of cash and equivalents at the end of last September and very little debt. The company plans to invest $1 billion in its AI infrastructure in Europe by the middle of this year and significantly expand its data center in Finland by 2026. Management thinks they can achieve an annualized revenue run rate of $750 million to $1 billion by the end of 2025. Some investors think Nebius is similar to an AI infrastructure company called CoreWeave. CoreWeave is rumored to go public soon at a $35 billion valuation. Despite Nebius' stock rising over 90% since rejoining the Nasdaq about five months ago, the company still only has a roughly $9 billion market cap.