Artificial intelligence (AI) holds incredible potential to change industries. Some have likened AI to the greatest transformational technology since the Internet.
Many companies are trying to capitalize on AI secular trend. Two are Palantir Technologies(NYSE:PLTR) And C3.ai(NYSE:IA). The former uses AI to derive insights from data, and the latter provides organizations with turnkey, custom AI software.
The AI market is expected to grow rapidly, from a projected $184 billion this year to $827 billion by 2030. Given this growth, is Palantir or C3.ai the better investment in AI in the long term? Here’s a look at each to come to a conclusion.
Palantir has been helping the U.S. government analyze data since 2003, but it just launched its Artificial Intelligence Platform (AIP) in 2023. With its creation, AIP helped spur the expansion of Palantir’s non-governmental activities.
In the second quarter, Palantir saw 33% year-over-year sales growth to $307 million in its commercial division. This contributed to the company’s second quarter income reaching $678 million, an increase of 27% from the previous year.
Not only is Palantir’s revenue growing, but its financial health is also excellent. It exited the second quarter with net income of $135.6 million, up from $27.9 million in 2023. It also posted second-quarter adjusted free cash flow (FCF) of $149 million, an increase from $96 million the previous year.
AIP has been successful in attracting commercial customers because the platform allows companies to go from an AI concept to an actual implementation in just a few days. This capability is no small feat, and according to Palantir CTO Shyam Sankar, “this is where our entire opportunity in the market lies.”
Following the success of AIP, Palantir introduced a new AIP-based product called Warp Speed. This solution aims to solve bottlenecks in the manufacturing industry by leveraging AI to improve an organization’s supply chains and manufacturing processes.
If Palantir can tackle this massive market, which accounted for nearly $3 trillion in U.S. gross domestic product (GDP) last year, it could fundamentally transform its fortunes.
C3.ai started in 2009 as an energy management company and moved into AI software in 2019. Its roots in the energy sector allowed the company to form a joint venture with the giant energy. Baker Hughes to provide AI technology to the oil and gas sector. This allowed C3.ai to capture customers such as Shell And ExxonMobil.
C3.ai’s software platform can address various situations where AI can help a business, such as fraud detection for banks. The company generated 84% of its revenue from subscriptions during its fiscal 2025 first quarter, ended July 31. The rest came from services such as training and customer support.
The demand for AI has led to rapid revenue growth for the company. During the fiscal first quarter, sales reached $87.2 million, a 21% year-over-year increase. This continues the double-digit revenue growth C3.ai enjoyed in its 2024 fiscal year, when sales reached $310.6 million, a 16% year-over-year increase.
The company also produced FCF of $7.1 million in the first quarter, a substantial improvement from the prior year’s negative FCF of $8.9 million. However, C3.ai is not profitable. Its first-quarter net loss was $62.8 million.
Additionally, the company’s partnership with Baker Hughes is expected to end in April 2025. This is a key relationship for C3.ai, with some estimates suggesting that Baker Hughes accounts for more than a third of C3.ai’s revenue. .
Choosing Palantir or C3.ai as the best investment is not easy. Although both are experiencing strong revenue growth, C3.ai’s lack of profitability appears to make Palantir the better AI company to invest in. Still, Palantir’s success has sent its stock price soaring, with shares soaring more than 150% in the past 12 months.
At this point, the company’s stock looks quite expensive when comparing its price-to-sales (P/S) ratio to that of C3.ai. The P/S ratio tells you how much investors should pay per share for a dollar of income.
PS PLTR ratio table
Wall Street agrees. The consensus among Wall Street analysts is a “hold” rating with a $28 median price target for Palantir stock. Given that shares are trading at around $43 as of this writing, Wall Street’s price target indicates that Palantir’s shares are overvalued.
That said, C3.ai is far from a buy. Like Palantir, the consensus among Wall Street analysts is a “hold” rating for C3.ai stock, with a median price target of $22.
Added to this is the uncertainty surrounding the renewal of C3.ai’s partnership with Baker Hughes. Therefore, any decision regarding the purchase of C3.ai shares should be delayed until this partnership situation is resolved.
Without Palantir’s sky-high valuation, it would be the better AI investment over C3.ai, given its superior financials, the success of AIP, and its future potential with Warp Speed. But right now, it’s best to wait for Palantir’s stock price to drop before deciding to buy.
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Robert Izquierdo holds positions at Palantir Technologies. The Motley Fool ranks and recommends Palantir Technologies. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.
