Overlooked Palantir's Opportunity? Here's a Single AI Stock Worth Investing in Before Its Explosive Growth in 2025
Palantir Technologies (PLTR 8.54%) has been among the most popular stocks in 2024, clocking in impressive gains of 319% thus far. The company's artificial intelligence (AI) software platform has seen tremendous demand from clients and governments looking to incorporate generative AI into their data analysis.
Palantir's revenue growth has picked up speed in recent quarters, and its substantial revenue pipeline suggests it could maintain this pace in 2025 as well. However, there's one issue with Palantir shares at present - its evaluation. The stock trades at a staggering 67 times sales and 372 times trailing earnings.
This makes it clear that Palantir is not a value stock. What's more critical is that the AI software provider will need to surpass Wall Street's expectations quarter after quarter to sustain its scorching stock market rally. Palantir's valuation is now so high that the stock's median 12-month price target of $38, as per 20 analysts, indicates a potential 48% decline from its current level.
The good news for investors interested in tapping into the booming generative AI software market is that there's a more budget-friendly alternative to Palantir up for grabs.
C3.ai capitalizes on the burgeoning enterprise AI software market
C3.ai (AI 2.51%) has not produced returns as impressive as Palantir's throughout 2024, but that works to investors' advantage as it can be purchased at a more affordable valuation. However, it's essential to note that C3.ai's financial growth in the second quarter of fiscal 2025 (which ended on Oct. 31) is comparable to Palantir's.
C3.ai published its latest quarterly results on Dec. 9. The company's revenue climbed an impressive 29% year over year to $94.3 million, outperforming the consensus estimate of $91 million. Moreover, C3.ai's net loss per share shrank to $0.06 per share from $0.13 per share in the previous period. Analysts had anticipated a bigger loss of $0.16 per share.
A crucial point to mention here is that C3.ai's growth has been increasing steadily in recent quarters. For instance, the company reported a 17% year-over-year increase in revenue in the year-ago quarter, while its revenue growth was 21% year over year in the first quarter of fiscal 2025. This acceleration in C3.ai's growth is due mainly to an increase in the number of client agreements the company is securing.
Specifically, C3.ai signed 58 client agreements last quarter, which is almost the same as the 62 agreements it secured in the same period last year. However, C3.ai managed to win more business from existing clients. As CEO Tom Siebel pointed out during the latest earnings conference call, the company has entered into new and expanded agreements with ExxonMobil, Coca-Cola, Dow, Holcim, Shell, Duke Energy, Boston Scientific, Rolls-Royce, Cameco, Mars, ESAB, and Flex and Worley, among others.
C3.ai's AI software offerings are gaining popularity among federal clients as well. The company has entered into new and expanded contracts with the U.S. Department of Defense, U.S. Air Force, U.S. Navy, U.S. Army, U.S. Marine Corps, the Defense Logistics Agency, and the Chief Digital Artificial Intelligence Office, among others.
C3.ai was involved in 36 pilot projects last quarter, suggesting a good chance of securing more contracts in the future and continuing its growth at a healthy pace. The company has also raised its fiscal 2025 guidance and now anticipates ending the year with $388 million in revenue at the midpoint, up from the previous midpoint of $382.5 million.
The updated revenue guidance means that the company is on track to finish the current fiscal year with revenue growth of 25%, though that figure could increase if it manages to convert more of its pilots into actual customers. In comparison, C3.ai's revenue grew by 16% in the previous fiscal year. Additionally, analysts have dramatically increased their revenue projections for C3.ai for the following year as well.
The valuation makes C3.ai stock an appealing buy
We've seen that Palantir stock is expensive at 67 times sales. In contrast, C3.ai trades at a lower price-to-sales ratio of 15. Another significant point is that Palantir's revenue grew by 30% year over year in the previous quarter. So, C3.ai is hardly lagging behind in its pace of growth.
Furthermore, C3.ai's full-year revenue growth forecast is on par with Palantir's anticipated growth for 2024. It's true that Palantir is a much larger company, but investors will need to pay a significantly higher valuation to purchase it. Therefore, investors who missed out on Palantir's exceptional rally this year can still consider buying C3.ai.
The stock could deliver respectable returns - assuming C3.ai generates $465 million in revenue in the following fiscal year (as shown in the preceding chart) and the market decides to reward it with a higher sales multiple due to its improving growth profile and the premium that its fellow AI software specialist is earning.
Given that C3.ai is projected to have a sales multiple of as high as 20 at the conclusion of the upcoming fiscal year, its market value could escalate to an impressive $9.3 billion, as per the revenue forecast shared earlier. This represents a substantial 94% surge from its current market cap. Even assuming a more conservative sales multiple of 15, C3.ai's market value would still reaching a substantial $7 billion, indicating a substantial 46% increase from its current worth.
For investors hunting for an artificial intelligence stock that offers a substantial discount compared to Palantir, yet exhibits comparable growth potential, C3.ai should undeniably pique their interest. Its promising trajectory suggests a robust 2025 could be in store.
Investors looking for a more budget-friendly alternative to Palantir in the generative AI software market can consider C3.ai. Despite not producing returns as impressive as Palantir, C3.ai's valuation is lower, with a price-to-sales ratio of 15 compared to Palantir's 67.
C3.ai's financial growth in the second quarter of fiscal 2025 outperformed expectations, with a 29% year-over-year revenue increase and a shrinking net loss per share. This growth trajectory, coupled with the company's successful client acquisitions and government contracts, suggests C3.ai could continue its pace in 2025.
