Palantir (NASDAQ: PLTR) has gained a reputation as one of the best artificial intelligence (AI) investments, with its shares up a whopping 320% since the start of 2024. However, looking at its current valuation, one could argue that the expectations embedded in its price are not necessarily based on the company’s fundamentals.
Palantir is currently worth approximately $160 billion. However, I think there are a few AI stocks that could exceed Palantir’s value by 2030. Those two candidates are Flake (NYSE: SNOW) and CrowdStrike (NASDAQ: CRWD).
Why these two? It all has to do with valuation.
Palantir and its AI software, which gives clients the tools they need to make decisions, has become very popular in the AI space. However, Palantir’s growth hasn’t been incredible. In the third quarter Palantirovi income increased by 30% compared to the previous year. While that’s strong, it’s nearly identical to Snowflake and CrowdStrike’s most recent quarterly revenue growth of 28% and 29%, respectively.
Snowflake’s revenue growth was fueled by its data cloud software platform, which is essential for storing and providing data to AI models. CrowdStrike, on the other hand, is a cybersecurity service provider that uses artificial intelligence to determine what is a threat and what is normal activity. Obviously, from only the latest quarterly results, the real winner cannot be established.
However, over the past three years, Palantir’s total revenue has grown by just 61%, while Snowflake’s and CrowdStrike’s revenues have grown by 180% and 158%, respectively.
Snowflake and CrowdStrike clearly have the edge over Palantir in the growth lead, and it wouldn’t be surprising if Palantir struggles to justify its current valuation. As expected, the three companies are valued at very different levels.
The market has given Palantir a huge premium over its peers, trading at a whopping 61 times trailing 12-month sales at the time of writing, which is why Palantir’s market cap is so much higher than its peers. But that price doesn’t seem normal, given Palantir’s level of growth — even after factoring in its profitability (more on that later).
This should be an obvious red flag for Palantir investors, as it is unlikely to be able to sustain that value unless its growth accelerates. Still, there are some key reasons why Palantir is better than CrowdStrike or Snowflake.
One key advantage Palantir has over the other two is its profitability. Palantir is solidly profitable and has been for some time. Snowflake and CrowdStrike were nowhere near the level of profitability that Palantir has.
That certainly gives Palantir an edge and explains some of its expensive stock price. After years of being deeply unprofitable (Snowflake) or teetering between break-even (CrowdStrike), the market may be skeptical that these two will ever get over the hump and turn a solid profit margin like Palantir. And sometimes the market can quickly change its perception of a stock, catching investors off guard.
Having said that, Palantir has set a great example for both companies. In Q2 2022, Palantir’s loss margin was a dismal 38%. However, two quarters later, in the fourth quarter of 2022, Palantir broke even and has been steadily improving its profitability ever since. If either Snowflake or CrowdStrike have a Palantir moment and deliver strong earnings, I wouldn’t be surprised to see these two outperform Palantir in the next five years. Because during this period there is a good chance that both companies will become profitable.
Additionally, there is the issue of Palantir very expensive shares. At the time of writing, Palantir trades for a whopping 359 times earnings. Over the next five years, if Palantir maintains a 30% revenue growth rate and a 20% profit margin, that would value Palantir at 83 times earnings if the stock remains at the same price as it is now.
On the other hand, what would happen if Snowflake and CrowdStrike could flip the switch and be profitable like Palantir? At today’s stock prices and earnings, if Snowflake and CrowdStrike were currently profitable reflecting Palantir’s 20% profit margin, they would trade at just 83 and 118 times earnings, respectively. rightnow.
While both companies undoubtedly have a long way to go before they reach Palantir’s profit levels, it also shows that they’re far cheaper shares than Palantir, and with five years of growth ahead of them, it’s very likely they’ll catch up in value to Palantir.
By 2030, I think Snowflake and CrowdStrike will be worth a lot more than Palantir. This should probably happen with the combination of CrowdStrike and Snowflake reaching profitability and Palantir’s valuation falling to a reasonable level.
Regardless, if you think Snowflake and CrowdStrike can reach profitability in the next five years (like I do), they seem to be a far better buy than Palantir right now.
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Keithen Drury holds positions at CrowdStrike and Snowflake. The Motley Fool has positions in and recommends CrowdStrike, Palantir Technologies and Snowflake. The Motley Fool has a disclosure policy.
