Is Palantir the best artificial intelligence (AI) stock available today?

Palantir (PLTR -2.28%) One of the most popular artificial intelligence (AI) software investments. Your skills in this area are notable. This comes from great products and years of experience deploying AI.

However, not all successful companies are good investments. Sometimes expectations are too high for a stock to rise. But does Palantir fall into this category, or is the stock destined for more upside? Let’s explore.

Palantir’s AI products are in huge demand.

Some companies can offer groundbreaking AI platforms, but not Palantir. Their products enable customers to build AI solutions that help them make business decisions tailored to their needs.

This professional preference dates back to Palantir’s founding when it was a tool used by government agencies such as the Department of Defense. Government contracts remain a large part of Palantir’s business, accounting for $324 million of its total $608 million in fourth-quarter 2023 revenue. However, the company’s current growth comes from the commercial space, where sales are up 70% year-over-year.

What is the biggest reason for the rise? Palantir’s Artificial Intelligence Platform (AIP for short). AIP allows Palantir to integrate Large Language Models (LLMs) into its business, the same technology behind ChatGPT or generative AI platforms like ChatGPT. alphabetThis is Google Gemini. The problem with leveraging these platforms is that the data fed into those models can be used by the creator’s company. This is problematic because many customers are unwilling or unable to share information.

Additionally, integrating LLM into internal systems is not straightforward, so deploying tools such as AIP can be helpful.

The response to AIP has been amazing. Chief Revenue Officer Ryan Taylor said the following about AIP during Palantir’s fourth quarter conference call: “We’ve never seen the level of customer enthusiasm and demand we’re seeing from AIP in U.S. advertising before.”

That’s a high valuation for a single product, but does that translate into a stock worth owning?

Investors have to pay a high premium to own Palantir stock.

Overall, Palantir’s business is doing well, but it’s not setting the world on fire like some might expect. Total revenue increased 20% year-over-year in the fourth quarter and is expected to increase 17% throughout 2024.

Despite this, the stock trades at a huge premium.

PLTR PS Ratio Data from YCharts

26x sales is a huge premium to pay. This is especially true for stocks that are only expected to grow in the low teens this year. Many investors are unfamiliar with price-to-sales ratios, but if you give Palantir a 30% profit margin, it would trade at 87 times earnings. To compare, Crowd StrikeThe cybersecurity software company is trading at 25x revenue and is expected to grow revenue by 29% in fiscal 2025 (ending January 2025). snowflakean AI-critical software company whose data cloud software could increase its revenue by 19x, expects 22% product revenue growth (fiscal 2025 through January 2025).

While Palantir has been successful as a company and has launched a variety of products, there is a lot of fluff in the stock. I wouldn’t be surprised to see Palantir’s business succeed in the coming years. However, the stock may have a hard time rising due to the high expectations inherent in the company.

I’d rather buy CrowdStrike or Snowflake. It’s still an expensive stock, but it’s growing faster than Palantir, at least while trading at a cheaper premium.

So is Palantir stock the best AI stock? I would like to say no. Investors will have to look elsewhere for a much better deal.