Companies and governments are generating more data than ever, and software companies like that Palantir (NASDAQ:PLTR) And Oracle (NYSE:ORCL) can help them make the best of it. But effective data use today depends on a key ingredient – artificial intelligence – and both companies will benefit from the increasing demand for AI services.
Both companies have already seen the impact of AI spending growth on their stock prices. As of this writing, Palantir shares are up 369% this year. Shares of Oracle are up a respectable 61% so far in 2024.
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Despite the strong financial prospects for both companies, Wall Street analysts expect only one of these AI-driven companies to rise further in 2025.
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Palantir has an average price target of $45 per share, based on the estimates of 22 analysts. That implies a 44% downside to the share price, at the time of writing.
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Oracle has an average price target of $197 per share, based on the estimates of 38 analysts. That implies an increase of 16% on the share price at the time of writing.
Here’s what investors need to know.
Image source: Getty Images.
Palantir: A strong company with incredibly expensive shares
Palantir’s software gives government and commercial customers the ability to gather actionable insights and develop operational efficiencies based on big data. The company initially built a customer base among government agencies, but over time expanded the framework to commercial customers.
These commercial customers are growing rapidly, up 51% year over year in the third quarter. Growth is particularly strong in the US, where the number of customers grew by 77% and commercial turnover in the US by 54%. In total, turnover grew by 30% last quarter.
Palantir also shows significant operating leverage. Adjusted operating margin increased to 38% from 29% in the third quarter last year. As Palantir scaled the business over the past year, it became GAAP profitable, carving out a niche in the market S&P500 index.
Palantir’s core products are Gotham and Foundry, which serve government and commercial customers, respectively. But the release of its artificial intelligence platform, AIP, has accelerated customer adoption over the past year and a half, especially in the US, CEO Alex Karp has focused more on product innovation than sales and marketing as a means of attracting new customers, and increasing adoption of AIP is a clear indication of the success of the strategy.
With relatively low operating costs and strong continued demand, Palantir should see great financial results in the coming years. The problem with the stock, however, is the price. The stock currently trades for an enterprise value/revenue multiple of 62. Even with strong revenue growth expectations, the company’s enterprise value is still 48 times analysts’ 2025 revenue forecast. It also trades for more than 150 times expected earnings expectations. Despite the company’s strength, this doesn’t justify a price anywhere near that level.
Oracle: a fast-growing cloud computing company powered by AI
Oracle has a long history of providing industry-leading database applications that help businesses store and use their data effectively. More recently, the cloud computing segment, specifically Oracle Cloud Infrastructure, or OCI, has been driving the results.
Oracle is rapidly expanding its computing capacity and there is clear demand for it. OCI revenue rose 52% in the most recent quarter. That’s an acceleration from each of the last two quarters. Meanwhile, the order book increased by 50% to a whopping $97 billion. That should allow accelerated growth to continue. Management expects Oracle’s total cloud services revenue to exceed $25 billion for fiscal 2025 (ending May), up from $19.8 billion in 2024.
Artificial intelligence spending is the main factor driving Oracle’s cloud revenues. GPU consumption increased 336% in the quarter. Oracle has signed several high-profile agreements with AI companies, including OpenAI and, most recently, Metaplatforms. Oracle will work with Meta to develop new AI agents that support industries ranging from healthcare to finance, based on Meta’s Llama model. That could cause a further increase in OCI demand.
With OCI revenues growing rapidly, Oracle is finally seeing some relief from the pressure that expansion has put on its financial results. Operating margin fell dramatically from 2021 to mid-2023. But profitability has improved as OCI scales, resulting in a 30% operating margin in the most recent quarter. That number should continue to rise to historic levels around 30%.
Additionally, Oracle’s rapid buildout of OCI puts the company in a stronger position to retain enterprise customers for its database applications. It built its infrastructure with an emphasis on migrating enterprise applications to the cloud. As the percentage of customers using the latest software increases, it should see strong retention there as well.
At the time of writing, Oracle’s stock trades for about 27.5 times forward earnings. If the stock were to reach analysts’ average price target of $197 within a year, it would trade at about 32 times trailing earnings, or about 30 times analysts’ current estimates for fiscal 2026. Now the AI spending supporting steady sales growth and strong margin expansion would be a fair price to pay. As such, investors could realistically see the stock rising 24% over the next year, as the average price target suggests.
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Adam Levy holds positions in Meta Platforms. The Motley Fool holds positions in and recommends Meta Platforms, Oracle, and Palantir Technologies. The Motley Fool has a disclosure policy.
