Palantir's AI-Driven Growth: Opportunities and Challenges Ahead of Q3 Earnings

Should You Buy Palantir Stock Before Monday's News? 2 Critical Things Investors Need to Know. | The Motley Fool

With its recent addition to the S&P 500, Palantir (PLTR 0.87%) is taking center stage. While the company isn't new -- it was founded by Peter Thiel, Stephen Cohen, and Alex Karp in 2003 -- recent advancements in artificial intelligence (AI) have supercharged its abilities. The intelligence company is demonstrating that real-world applications of AI are driving real-world value. That's no small point. While Nvidia is raking in billions of dollars selling AI hardware to big tech giants like Amazon and Alphabet, anxiety has grown over whether the technology can justify its massive expense. Palantir is part of a batch of companies doing just that. The company will report its Q3 earnings on Nov. 4. The release is highly anticipated as investors are keen to see its revenue growth continue apace. So, should you buy Palantir ahead of the market close on Nov. 4? Let's consider a couple of critical factors first. The company's revenue sources can be lumped into two distinct segments: government and commercial. The former is largely how the company made its name. For more than a decade, it has worked with agencies such as the FBI, Department of Homeland Security (DHS), National Security Agency (NSA), and Immigration and Customs Enforcement (ICE). This garnered the company some pretty negative press, something it still deals with today. At the same time, these contracts have proved lucrative. The great thing about working with government intelligence agencies is that because the barriers are so high, you have a built-in moat to protect your business once you've cleared them. The company has expanded beyond the U.S., offering its services internationally to the U.K., Ukraine, Israel, and others. There is no shortage of potential customers at this point. The company's commercial segment is nearly as valuable -- representing about 45% of its income last quarter -- and growing rapidly largely because its customer base is swelling, especially in the U.S. The company grew its domestic customer list by a whopping 83% year over year last quarter, helping drive the 33% year-over-year revenue growth for the segment. And while the company is bringing in more cash, it's also been cutting costs, meaning its net income has really taken off. Those are the trends investors want to see. As far as the fundamentals are concerned, Palantir is in a great position. Business fundamentals are important, but you're not buying the stock in a vacuum. Valuation matters, too, especially when there is a lot of hype involved. By just about any metric, Palantir carries a very hefty premium. Its price-to-earnings ratio (P/E) is currently more than 240. For context, Nvidia carries a P/E of around 60, which is already considered very high. Alphabet's is just 23. OK, but Palantir is in high-growth mode, right? Doesn't its future earnings justify its valuation? Maybe, but even if we look at metrics that take the future into account, Palantir's valuation should still make you pause. Its forward P/E -- its current price versus its expected future earnings -- is north of 100. That's still almost 3 times that of Nvidia's and 5 times that of Alphabet's. Its PEG ratio -- a metric that takes a company's rate of growth into account -- is 2.2 -- twice that of Nvidia and Alphabet. You can certainly get lost in the weeds here looking at different valuation metrics; ultimately, they're only guides. It's clear, however, that Palantir's stock is expensive; the market has priced in a whole lot of growth already. I'm not sure that it can keep up a pace of growth that will justify this. Eventually, even as it continues to grow earnings, the stock price won't keep pace. I would proceed with caution here.

Should You Buy Palantir Before Nov. 4? | The Motley Fool

Palantir Technologies (PLTR -0.09%) has been one of this year's artificial intelligence (AI) winners, posting double-digit gains in revenue, reporting its biggest quarterly profit ever, and watching its shares soar in the triple digits. The software company helps its customers aggregate their data and make better use of it -- and results could be game-changing as these customers become more efficient, cut costs, and potentially develop major new products and services. Palantir's latest earnings report, back in August, showed just how successful this 20-year-old company has become in recent times: Palantir lifted full-year guidance for total revenue, U.S. commercial revenue, and adjusted income from operations. Considering all of that good news, you may be confident about more to come in the next earnings report, scheduled for Nov. 4. Should you get in on the stock before then? Let's find out. First, let's take a quick look at the Palantir story so far. As mentioned, the company has been around for many years, but for most of its history, Palantir was most associated with government contracts. These customers still are driving double-digit revenue gains at the company, but another customer is proving to be a new source of even stronger growth. I'm talking about the commercial customer. Companies from Wendy's to United Airlines have signed up with Palantir for its data expertise. Wendy's is using Palantir's platform to improve the speed of decision-making across the company and eventually make an impact in the areas of supply chain management and waste prevention. United has deployed a predictive maintenance solution, resulting in millions of dollars saved. In the latest earnings report, Palantir's U.S. commercial revenue climbed 55%, while government revenue advanced 23%. And, importantly, its commercial customer count has soared. The company had only 14 U.S. commercial customers about four years ago -- today, that number is nearly 300. Palantir probably can thank its Artificial Intelligence Platform (AIP) for the surge in growth in recent times. This system harnesses the power of AI and a customer's data, and potential customers can get a taste of just how significant this can be for them through AIP "boot camps," where users can go from zero to a use case in just a few hours. The software company has seen strong demand for its boot camps, and they've translated into deals -- in many cases, very soon after the completion of a workshop. For example, the company says that in the recent quarter, a wholesale insurance broker signed a seven-figure deal with Palantir about two weeks after a boot camp. Looking ahead to next week's report, there's reason to be optimistic. AIP, launched last year, still is in the early chapters of its growth story, and the company has said quarter after quarter that demand remains high. This is within the context of general growth for the AI market, with today's $200 billion market forecast to expand to $1 trillion by the end of the decade. As companies race to capture the power of AI to improve their businesses, Palantir could continue to benefit. As mentioned earlier, last quarter Palantir boosted its full-year expectations, predicting at least 23% and 47% gains, respectively, year over year for total revenue and U.S. commercial revenue. And the company forecasts at least a 52% increase in adjusted income from operations. So, things are looking bright for Palantir -- but does this mean you should race to buy the stock before the Nov. 4 earnings report? Not necessarily. The best way to invest is for the long term, meaning holding quality stocks for at least five years -- and the great thing about this is it makes you less vulnerable to short-term stock movements. This means if Palantir rises or falls after its earnings report, that performance won't really impact your returns if you hold the shares for a number of years. This takes the pressure off because you don't have to rush out and buy a stock during a particular time frame. That said, Palantir does make an interesting buy -- before or after Nov. 4 -- thanks to its track record of growth and potential for more gains in earnings and share performance over the long haul.

The Future of Defense Is Artificial Intelligence (AI). Here's Why Palantir Is My Top Choice.

Artificial intelligence (AI) plays an important role in the defense sector, an opportunity expected to be worth $16 billion by the end of the decade. It's been nearly impossible to avoid the term "artificial intelligence" over the last couple of years. Yet, despite the constant inundation of references to AI, I'd wager that most times you wind up hearing the same topics covered over and over. For example, how many times have you heard about the impact AI will have on workplace productivity or how demand for graphics processing units (GPU) continues to soar? While these are important applications for AI development, it's important for investors to seek out lesser-known opportunities as well. One area where AI is overlooked is the defense industry. Over the last several years, corporate executives across all industry sectors have expressed the importance of investing in digital infrastructure in order to help their leaders make more informed and efficient decisions through the power of data. Being able to look at key performance indicators and operating metrics in an easy-to-read format can help a business uncover important insights related to budgeting, supply chain and logistics, and many other use cases. These same applications are pertinent to the defense sector. Branches of the military and government contractors also need to keep on top of finances, inventory levels, and logistical protocols. While the public sector's needs may be more specialized compared to that of a private enterprise, the market opportunity at the intersection of AI and defense is quite large. Mordor Intelligence estimates the global total addressable market for AI defense to be worth about $9 billion today, and it should grow to $16 billion by 2029. Moreover, Mordor cites the U.S. as the largest geographic market for AI defense. This is a good thing for Palantir, as the company's public sector business is focused on branches of the U.S. military and other Western agencies. How is Palantir winning the AI defense race? About half of Palantir's entire revenue base comes from government contracts. Let's take a look at some notable deal flow the company has won in recent years. A few years ago, the Department of Defense (DOD) tapped Alphabet to manage an initiative known as Project Maven. However, some of Alphabet's employees viewed the company's work with the U.S. military as controversial, ultimately leading to Alphabet leaving the project. Palantir swiftly took advantage of this decision, and it has been managing the Maven contract ever since. After establishing this partnership, Palantir has won other notable deals with the DOD, including a five-year contract worth up to $480 million with the U.S. Digital and Artificial Intelligence Office, as well as a five-year deal worth up to $100 million with the Army Research Laboratory (ARL). More recently, Palantir announced a strategic alliance with government contractor L3Harris Technologies. According to the press release announcing the deal, the partnership between Palantir and L3 Harris will focus on "a variety of ongoing initiatives, including collaboration on U.S. Army programs like TITAN and efforts aligned with the U.S. Army's Unified Network Strategy." This is an important point to understand. Becoming more aligned with other contractors on existing contracts better positions the company for future renewals, thereby strengthening the company's recurring revenue base. It's this dynamic that could lend credence to the idea that Palantir has yet to really begin scaling and is laying the necessary groundwork for larger opportunities down the road. Is Palantir stock a buy right now? Palantir stock has become increasingly expensive over the last few months. The AI narrative is undoubtedly fueling growth for the company across the top and bottom lines. While this is encouraging to see, shares of Palantir have soared to a point that's disconnected from the underlying fundamentals of the business. As of this writing, Palantir boasts a market cap of $100 billion -- or roughly 43 times the company's trailing-12-month sales. Data by YCharts. As the chart above clearly illustrates, Palantir stock has experienced some outsized valuation expansion over the last few months. Although the company is well positioned in the AI landscape and should continue to emerge as a big-time winner, Palantir stock has gotten too pricey. I don't think investors need to pour into the stock on the assumption that Palantir is some sort of hidden opportunity. The valuation trends above suggest otherwise. The long-term opportunity in the marriage of AI and the defense sector over the next several years is the more important idea. Palantir reports third-quarter earnings on Nov. 4. I'm more inclined to wait and see what management has to say during the earnings call and what it could mean for the company's long-run prospects.

Palantir's Stock Is Up 161% This Year. Is It Too Expensive to Buy?

The AI powerhouse looks unstoppable right now, but looks can be deceiving. Let's face it: Palantir (PLTR 2.98%) is irresistibly cool. How could it not be? The company's name is straight out of The Lord of the Rings; its flagship product's name, Gotham, is straight out of a comic book; and its primary goal -- using artificial intelligence (AI) to identify and stop terrorist threats that would have been missed by human agents -- could be straight out of Mission: Impossible. The stock is up 161% year to date, and that AI-based "cool factor" is likely part of why it's gotten investor's attention lately. After all, many investors clearly think AI stocks are pretty attractive, but some -- lookin' at you, c3.ai and Super Micro Computer -- have tumbled recently as they failed to live up to lofty expectations. Palantir, on the other hand, hasn't disappointed... yet. But as these other companies show, "cool" alone won't keep investors satisfied. Can Palantir's share price keep going up, or is it already too expensive to buy, no matter how cool it is? Fast-growing revenue Palantir's revenue growth has been surprisingly steady for such a young company, but that doesn't mean it hasn't been strong. In the most recent quarter, revenue was up 55% from the prior year. However, most of that revenue is coming from essentially a single client: the U.S. government, which provides 75% of Palantir's current revenue. Palantir provides its Gotham threat-management software to numerous U.S. defense and intelligence agencies, allowing Gotham to access siloed data from across the agencies' systems and analyze it comprehensively. Naturally, the more agencies that use Gotham, the more data it can analyze, and the better its results become. This scaling of benefits serves as a competitive moat to the company's government revenue. In order to switch to a new system from Gotham, multiple agencies would have to approve of the switch and allocate resources to making it happen, which would be an expensive and complex process. In addition to its steadily increasing government revenue from Gotham, Palantir has rolled out a number of commercial products for its growing number of corporate customers. The first of these products, named Foundry, operates similarly to Gotham, leveraging AI to analyze siloed information -- in this case, within different departments or business units of a company. The company's commercial products are popular -- commercial revenue growth has actually outpaced overall revenue growth. In its most recent quarter, Palantir's commercial customer count grew 83% year over year. Faster-growing share price Whether it was because of the company's impressive growth numbers or its cool factor, investors started to take notice of Palantir last year. The company's stock price, which was below $6.50 a share at the start of 2023, currently sits above $42 a share -- a more than 500% return. That gives the company a market capitalization of just under $100 billion on trailing-12-month revenue of just under $2.5 billion. That's a lofty valuation, even for a fast-growing company. It gives Palantir a price-to-sales (P/S) ratio of about 41 times sales. By comparison, even tech giant Nvidia, which is also expected to benefit from continuing growth in AI, only trades at about 36 times sales. Other data-related companies are nowhere near as highly valued. Datadog only has a P/S ratio of 19 times. Snowflake sits at 12 times, and all three have grown their revenue faster than Palantir over the past year. Is it still a buy? Palantir has gotten a lot of attention recently as a result of its addition to the S&P 500. That -- plus the cool factor -- is probably contributing to the stock's lofty valuation. Hot growth stocks that are priced for perfection often see a correction at the first sign of a potential growth slowdown. Datadog and Snowflake are both good examples. At the end of 2021, Datadog's P/S ratio was over 60, and Snowflake's was over 100. They couldn't sustain those valuations, and their share prices tumbled. I wouldn't be surprised to see something similar happen to Palantir as the growth of AI empowers potential competition for government AI spending. That said, as the clear first mover in this space, and as a company that seems to be experiencing rising demand for its products and successfully expanding into new markets, Palantir is poised for success over the long term. I like its prospects for future growth, even if it might take longer than I'd like for it to justify its lofty valuation. Bottom line, I would buy Palantir to hold for the long term, but given its sky-high valuation, there are other companies I'd buy first. I'll keep Palantir on my watch list to reconsider if its share price drops.

Where Will Palantir Stock Be in 5 Years?

Palantir Technologies (PLTR -2.76%) seems to be in the right place at the right time. Investor optimism about artificial intelligence (AI) is rising, while global tensions could boost demand for the company's military targeting and analytics software. But with Palantir's shares already up by 161% in 2024, how much longer can the bull run last? Let's dig deeper into what the next five years could have in store. The power of data Recently, big data has attracted a surge of interest because of its usefulness in training generative AI algorithms like ChatGPT and others, but its importance has been known for decades. Palantir has been working on big-data analytics since its founding in 2003, developing software-as-a-service (SaaS) platforms that can analyze large volumes of information to detect patterns and glean actionable insights. The company made a name for itself in the aftermath of the Sept. 11 terrorist attacks, helping the U.S. intelligence community and Department of Defense with highly sensitive missions such as the hunt for Osama Bin Laden. This work likely gave Palantir significant operational experience and, more importantly, a strong economic moat as it established trust with discerning government clients. SaaS business models also have a level of inherent stickiness. Once an organization commits to using a particular platform, it may be less inclined to switch to an alternative (even if it's better) because of switching costs and the difficulty of retraining its workforce to a new system. Artificial intelligence supercharged the business Palantir's operations center around two core SaaS offerings: Gotham (for government clients) and Foundry (for commercial clients). But recently, it has begun offering its Artificial Intelligence Platform (AIP), which combines its legacy data analytics software with large language models (LLMs) to help organizations get real-time insights about their data. AIP has clear uses in military contexts, where it can supply operators with real-time threats and targets. And Palantir is already working with the armed forces of Israel and Ukraine for combat-related missions. AIP also boosts Palantir's commercial business, where clients are drawn to the company's reputation for security. The second-quarter earnings highlight its momentum. Revenue grew 27% year over year to $678 million, led by U.S. commercial revenue, which increased 55% to $159 million. Palantir is also solidly profitable, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rising 39% year over year to $261.6 million. However, to be fair, Palantir's adjusted EBITDA adds back $142 million in stock-based compensation. While paying employees with stock can save cash and incentivize them to work hard, it dilutes current investors' claims on future earnings by increasing the number of shares outstanding. With this in mind, Palantir isn't as profitable as it may look on the surface. But that isn't the only red flag for the stock. What will the next five years bring? While Palantir's decades of experience with government clients have given it a strong moat with the intelligence community and defense industry, its position with commercial clients will be much more vulnerable over the coming years. The data analytics opportunity is no easy ride. For example, Microsoft offers similar services, called Fabric, within its cloud computing ecosystem while also having a strong footprint in generative AI through its stake in industry leader OpenAI. Stiff competition means Palantir will enjoy fewer growth opportunities and more margin pressure.

Billionaires Are Deciding to Sell Shares of This Well-Known Stock

Billionaires are dumping one of the most popular AI stocks of the year. The artificial intelligence (AI) revolution is making big winners of several semiconductor companies. However, there is one software firm with a nice lead integrating generative AI into its platform and achieving tangible business outcomes: Palantir (PLTR 2.98%). AI has been driving accelerating growth for Palantir's Artificial Intelligence Platform, or AIP, especially in its commercial business. As a result, Palantir's stock is up 150% on the year and now hovers around new all-time highs. However, with its valuation ballooning, a prominent billionaire and major hedge fund are now taking their chips off the table. Is this a danger sign for this high-flying stock? Founder Peter Thiel cashes out One of Palantir's founders, venture capitalist Peter Thiel, recently sold about $1 billion in Palantir stock between May and Oct. 1. Back in May, Thiel adopted a 105b-1 plan to sell up to 28,590,737 shares before the end of the year. When the plan was adopted, that added up to roughly $1 billion. Thiel's program began selling last month and finished up with the 28.6 million share sale on Oct. 1. So, he is done selling for the year. But should investors be worried that one of the company's founders is selling so much? I wouldn't let Thiel's sales determine your outlook on Palantir. After all, even after these sales, Thiel still owns a huge amount of the company's stock. His investment vehicle that sold the shares, Rivendell 7 LLC, still owns 34.26 million shares. Other Thiel-owned vehicles own another 37 million shares in addition to 32.5 million Class B shares that are financially equal to Class A shares but carry 10 votes per share. Thiel also controls over 335,000 out of just over 1 million Class F founder's shares. Those 1 million shares split between the company's three founders control 49.99% of the voting power of the company. So, between all those holdings, Thiel still owns about 104 million shares worth about $4.4 billion today. Thus, Thiel's "big" sale only amounts to about 21.5% of his stake. That's not particularly drastic, given that the stock has rallied so much this year and that Thiel is also perpetually investing in new venture companies. Renaissance Technologies also trims its stake In addition to Thiel, the hedge fund that sold the greatest number of Palantir shares in the second quarter, shedding 7.8 million shares, was the legendary Renaissance Technologies. Renaissance Technologies was founded by the late Jim Simons, who passed away in May 2024. In the 1980s, Simons founded the company and its signature Medallion Fund, one of the first hedge funds to use vast troves of data to make trading decisions. Thus, it was one of the first "quant funds," which have gained popularity in recent years. Between 1988 and 2018, the fund compounded at a staggering 39.99% rate, net of fees, compared with the S&P 500 index's 10.7% return over that time. So, should investors worry about Renaissance's big sale of Palantir stock? Probably not. Although the famous fund sold a lot of shares, it did so because it already had a big position. The second quarter's sales only amounted to 16.6% of its stake from the prior quarter. Even after the sale, Palantir was still Renaissance's second-largest holding, at 1.7% of the firm's highly diversified portfolio. Therefore, the sales look like mere profit-taking and portfolio rebalancing after a big run. No reason for Palantir's shareholders to panic, but caution is warranted While some very large and savvy investors have been selling Palantir stock, both Thiel and Renaissance continue to hold large positions in the name. The healthy trims jive with an optimistic long-term outlook for Palantir's business, but perhaps also an acknowledgment that its valuation has become full or even ahead of itself in the near term. After all, Palantir's stock trades at over 100 times next year's earnings estimates and over 41 times current sales. That is really, really expensive and poses risks to the stock should anything go wrong. However, with Palantir's recent results showing acceleration and us being in the early innings of the AI revolution, these big-name investors apparently think operating results will eventually grow into that valuation. So, Palantir owners may want to trim as these big-name investors did. Though, if you are still a bull on the company's long-term business outlook, you may also want to retain a portion, as these investors are doing.

Palantir Stock vs. Alphabet Stock: Wall Street Says Buy One and Sell the Other | The Motley Fool

Palantir and Alphabet are cashing in on artificial intelligence, but Wall Street expects one of the stocks to decline sharply. Artificial intelligence (AI) platforms bring together the software tools needed to develop, deploy, and evaluate AI models and applications. Spending on AI platform services is expected to increase rapidly, so much so that they "will be the fastest growing technology in the years to come," according to IDC analyst Andrea Minonne. Palantir Technologies (PLTR 2.98%) and Alphabet (GOOGL 1.57%) (GOOG 1.50%) should both benefit from that trend. But Wall Street expects the stocks to move in opposite directions over the next year, as detailed below: In short, most Wall Street analysts expect Palantir stock to decline during the next year, and they expect Alphabet stock to climb higher. Here are the important details. Palantir sells analytics software to commercial and government customers. Its primary platforms, Foundry and Gotham, let businesses capture data, develop models, and surface insights with analytical applications. Its adjacent AIP (Artificial Intelligence Platform) product brings natural language processing capabilities to Foundry and Gotham, which lets businesses apply generative AI to their operations. In August, Forrester Research recognized Palantir a leader in artificial intelligence and machine learning (ML) platforms. The report highlighted strong capabilities in data ingestion and preparation, and an intuitive user interface, as reasons why "Palantir is quietly becoming one of the largest players in this market." In September, Palantir was a top-ranked vendor in Dresner Advisory Services' report on model operations, a discipline that deals with the development, deployment, and maintenance of analytical models. Palantir continued to build momentum in the second quarter. Its customer count rose 41%, and the average existing customer spent 14% more. In turn, revenue rose 27% to $678 million, and non-GAAP earnings increased 80% to $0.09 per diluted share. Importantly, the company touted the success of its go-to-market strategy with AIP, which uses interactive workshops called bootcamps to engage prospective clients. Palantir's business is fundamentally solid. It has a strong competitive position in an industry projected to grow quickly, and it is executing on that opportunity. But the stock has a serious drawback in its price tag. Wall Street expects Palantir's adjusted earnings to increase at 22% annually over the next 12 months. That makes the current valuation of 140 times adjusted earnings look utterly absurd. In late September, when Palantir traded at $37 per share, it was the most overvalued stock in the S&P 500 in terms of the discrepancy between its current price and the median target price. But the market is not always rational. Palantir shares have since climbed to $45, and may climb even higher. But investors should steer clear. Unless earnings grow much faster than anticipated, Palantir stock will almost certainly suffer a sharp correction at some point. Alphabet primarily generates revenue through its Google operating segment, though its autonomous driving subsidiary Waymo could one day be a meaningful growth driver. In June, Forrester Research ranked Google as a leader in foundational large language models shortly after the company released Gemini, a family of models that have been integrated across its advertising and cloud computing ecosystems. In advertising, Gemini surfaces AI overviews in Google Search. CEO Sundar Pichai says that innovation has boosted usage and satisfaction, especially among young adults aged 18 to 24. Gemini also powers AI features in Google Ads that streamline creative asset production and campaign planning. Google already dominates the digital advertising market with 27% revenue share, but those tools could further cement its leadership. In cloud computing, Forrester Research recently recognized Google as a leader in AI/ML platforms. Palantir received higher scores for its current offering, but Google scored higher for its growth strategy. The company has introduced more than 500 updates for Vertex AI (its AI/ML platform) since 2023, including the ability fine-tune Gemini models and build custom generative AI applications. Alphabet reported encouraging financial results in the second quarter. Revenue rose 14% to $84.7 billion on strong sales growth in cloud services and modest growth in advertising. Meanwhile, GAAP earnings rose 31% to $1.89 per diluted share. "Year to date, our AI infrastructure and generative AI solutions for cloud customers have already generated billions in revenues, and are being used by more than 2 million developers," Sundar Pichai told analysts. As a caveat, there is regulatory risk associated with Alphabet stock because a federal judge recently ruled Google engaged in illegal practices to maintain its monopoly in search. But most analysts are still bullish. Indeed, Wall Street estimates Alphabet's earnings will grow 16% over the next 12 months. That makes the current valuation of 24 times earnings look reasonable. Investors should feel comfortable buying a small position at the current price.

Better Artificial Intelligence Stock: Palantir vs. C3.ai | The Motley Fool

Both tech companies are capturing customers hungry for their AI solutions. Artificial intelligence (AI) holds incredible potential to change industries. Some have likened AI to the biggest transformational technology since the internet. Plenty of companies are trying to capitalize on AI's secular trend. Two are Palantir Technologies (PLTR 2.98%) and C3.ai (AI 1.12%). The former uses AI to derive insights from data, and the latter provides organizations with turnkey and custom AI software. The AI market is expected to expand rapidly from a projected $184 billion this year to $827 billion by 2030. Given this growth, is Palantir or C3.ai the better AI investment for the long haul? Here's a look at each to reach a conclusion. Palantir has been helping the U.S. government analyze data since 2003, but it just released its artificial intelligence platform (AIP) in 2023. With its inception, AIP helped to spur the expansion of Palantir's non-government business. In the second quarter, Palantir experienced 33% year-over-year sales growth to $307 million in its commercial division. This contributed to the firm's Q2 revenue reaching $678 million, a 27% jump up from the previous year. Not only is Palantir's revenue growing, but its financial health is also excellent. It exited Q2 with a net income of $135.6 million, up from $27.9 million in 2023. It also boasted Q2 adjusted free cash flow (FCF) of $149 million, an increase from the prior year's $96 million. AIP successfully attracted commercial customers because the platform enables businesses to go from an AI concept to real-world implementation in as little as a few days. This ability is no small feat, and according to Palantir's CTO, Shyam Sankar, "therein lies our entire opportunity in the market." As a follow-up to AIP's success, Palantir introduced a new product built on AIP called Warp Speed. This solution is meant to address bottlenecks in the manufacturing industry by leveraging AI to improve supply chains and an organization's manufacturing processes. If Palantir can successfully tackle this massive market, which represented nearly $3 trillion in U.S. gross domestic product (GDP) last year, it could fundamentally transform its fortunes. C3.ai began in 2009 as an energy management company and transitioned to AI software in 2019. Its energy industry roots enabled the firm to form a joint venture with energy giant Baker Hughes to deliver AI tech to the oil and gas sector. This allowed C3.ai to capture customers such as Shell and ExxonMobil. C3.ai's software platform can address various situations where AI can help a business, such as fraud detection for banks. The company generated 84% of its revenue from subscriptions in its 2025 fiscal first quarter, which ended July 31. The remainder came from services such as training and customer support. AI demand led to rapid revenue growth for the company. In its fiscal Q1, sales hit $87.2 million, a 21% year-over-year increase. This extends the double-digit revenue growth C3.ai enjoyed in its 2024 fiscal year when sales reached $310.6 million, a 16% year-over-year increase. The firm also produced Q1 FCF of $7.1 million, a substantial improvement over the prior year's negative FCF of $8.9 million. Yet, C3.ai is not profitable. Its Q1 net loss totaled $62.8 million. In addition, the company's partnership with Baker Hughes is contracted to end in April 2025. This is a key relationship for C3.ai, with some estimates suggesting Baker Hughes accounts for over a third of C3.ai's revenue. Choosing Palantir or C3.ai as the better investment isn't straightforward. While both enjoy strong revenue growth, C3.ai's lack of profitability would seem to make Palantir the better AI business to invest in. Yet, Palantir's success drove up its stock price, with shares skyrocketing over 150% in the past 12 months. At this point, the firm's shares look quite pricey when comparing its price-to-sales (P/S) ratio to C3.ai. The P/S ratio tells you how much investors must pay per share for a dollar's worth of revenue. Wall Street agrees. The consensus among Wall Street analysts is a "hold" rating with a median share price target of $28 for Palantir stock. Given that shares trade for around $43 at the time of this writing, Wall Street's price target indicates a belief that Palantir shares are overpriced. That said, C3.ai is far from a buy. Like Palantir, the consensus among Wall Street analysts is a "hold" rating for C3.ai stock, with a median share price target of $22. Adding to this is uncertainty around the renewal of C3.ai's partnership with Baker Hughes. Consequently, any decision around buying C3.ai shares should be delayed until this partnership situation is resolved. If not for Palantir's sky-high valuation, it would be the better AI investment over C3.ai, given its superior financials and AIP's success and future potential with Warp Speed. But at this time, it's best to wait for a drop in Palantir's share price before deciding to buy.