Palantir Technologies (NASDAQ:PLTR) has been one of the hottest stocks on the market in 2024, posting astonishing gains of 319% at the time of writing. The company’s artificial intelligence (AI) software platform is in high demand among customers and governments looking to integrate generative AI into their data analytics.
Palantir’s revenue growth has accelerated in recent quarters, and its significant revenue pipeline suggests the company could maintain that momentum into 2025. However, there is one problem with Palantir stock right now: its valuation. The stock trades at a whopping 67 times sales and 372 times trailing earnings.
This makes it clear that Palantir is not a value stock. More importantly, the AI software specialist will need to continue to beat Wall Street expectations quarter after quarter to continue its red-hot stock market rally. Palantir’s valuation is now so expensive that its average 12-month price target of $38, according to 20 analysts, indicates a 48% decline from current levels.
The good news for investors looking to capitalize on the booming market for generative AI software is that there is a much cheaper alternative to Palantir that they can buy right away.
C3.ai taps into the fast-growing enterprise AI software market
C3.ai (NYSE:AI) Stock returns this year won’t be anywhere near Palantir’s, but that’s good news for investors as the shares can be purchased at a much cheaper valuation. But more importantly, C3.ai’s growth in the second quarter of fiscal 2025 (which ended October 31) shows that it can match Palantir’s financial growth.
C3.ai announced its latest quarterly results on December 9. The company’s revenue rose an impressive 29% year over year to $94.3 million, well above the consensus estimate of $91 million. Additionally, C3.ai’s net loss shrank to $0.06 per share from $0.13 per share in the same period last year. Analysts had expected a wider loss of $0.16 per share.
The most important thing to note here is that C3.ai’s growth has improved at an impressive pace in recent quarters. For example, the company reported a 17% year-over-year revenue increase in the year-ago quarter, while revenue rose 21% year-over-year in the first quarter of fiscal 2025. This acceleration in C3.ai’s growth can be attributed to an increase in the number of customer agreements the company is signing.
More specifically, C3.ai closed 58 customer agreements last quarter, which was almost in line with the 62 agreements it closed in the same period last year. However, C3.ai managed to win more business from existing customers. As CEO Tom Siebel noted during the company’s latest earnings conference call, the company has entered into new and expanded agreements ExxonMobil, Coke, Dow, Holcim, Shell, Duke Energy, Boston Scientific, Rolls Royce, Cameco, Mars, ESABand Flex and Worley, among others.
C3.ai’s AI software offering is also gaining popularity among federal customers. The company has signed new and expanded agreements with the U.S. Department of Defense, U.S. Air Force, U.S. Navy, U.S. Army, U.S. Marine Corps, Defense Logistics Agency, and the Chief Digital Artificial Intelligence Office, among others.
C3.ai was also involved in 36 pilot projects last quarter. So there’s a good chance that it can win more contracts in the future and continue to grow at a healthy pace. The company also raised its guidance for fiscal 2025 and now expects to end the year with revenue of $388 million at the midpoint, up from the previous midpoint of $382.5 million.
The updated revenue guidance means the company is on track to end the current fiscal year with revenue growth of 25%, although that figure could go even higher if it can convert more of its pilots into actual customers. By comparison, C3.ai’s revenue increased by 16% in the past financial year. More importantly, analysts have significantly increased their revenue expectations for the company for next year as well.
AI revenue estimates for next fiscal year data by YCharts
The valuation makes C3.ai stock a solid buy
We’ve already seen how expensive Palantir stock is right now, at 67 times revenue. By comparison, C3.ai trades at a much lower price-to-sales ratio of 15. Something else worth noting is that Palantir’s revenue was up 30% year over year in the previous quarter. So C3.ai is not far behind in its growth rate.
Furthermore, C3.ai’s revenue growth forecast is in line with the growth Palantir is expected to achieve in 2024. Of course, Palantir is a much larger company, but investors will have to pay a significantly richer valuation if they want it. buy it. So, investors who missed Palantir’s remarkable rise this year may still consider buying C3.ai.
The stock could deliver a healthy profit – assuming C3.ai generates $465 million in revenue next fiscal (as we saw earlier in the chart) and the market decides to reward it with a higher sales multiple thanks to the improving growth profile and premium that his fellow AI software specialist is in charge.
Assuming C3.ai records even 20 times revenue by the end of the next fiscal year, its market cap could reach $9.3 billion based on the revenue estimate discussed above. That would be a 94% jump from current levels. Even a sales multiple of 15 would translate into a market cap of $7 billion, which would be a 46% increase from current levels.
Investors looking to add an AI stock to their portfolios that is significantly cheaper than Palantir but matches the growth can certainly take a closer look at C3.ai as it appears poised for a solid 2025.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Palantir Technologies. The Motley Fool recommends C3.ai, Cameco, Duke Energy, Marston’s Plc and Rolls-Royce Plc. The Motley Fool has a disclosure policy.
