Both companies have been impacted by the AI boom, but in very different ways.
If there’s one big trend revolutionizing the world today, it’s artificial intelligence (AI). With the ability to analyze vast amounts of data and help users make smart decisions, AI is revolutionizing nearly every industry, from finance to education, healthcare, energy, and more.
This revolution will create winners and losers, as the former embrace these new technologies and the latter try to shy away from them. Palantir (supplement -0.21%) and Meta platform (Meta 0.20%)Both are likely winners, but which one is a better investment for your portfolio right now?
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Palantir
Founded in 2003, Palantir’s original core business was helping the U.S. government analyze the vast amounts of complex, unstructured data it had accumulated in its many databases. With the help of Palantir’s early AI software, intelligence agencies gained insights that helped them make critical decisions in counterterrorism operations.
This initial success allowed the company to expand its client base to other government agencies both domestically and internationally. In recent years, the technology company has used its experience in the public sector to help private companies with complex tasks such as fraud detection and risk management. All these problems require a robust software platform that can consume vast amounts of internal and external data, analyze it, and provide useful insights to its customers.
Palantir’s software platforms (Gotham for government agencies and Foundry for private sector clients) can process massive amounts of data, allowing clients to leverage their existing data infrastructure when implementing Palantir’s Artificial Intelligence Platform (AIP) solutions, including machine learning, generative AI, and more.
Potential customers can also take advantage of Palantir’s AIP “bootcamps” to try out the company’s software. These events allow organizations to quickly see how the company’s services can be directly applied to one of their specific needs. Giving potential customers the opportunity to experience how AI can benefit their existing operations gives Palantir an edge over most of its competitors, especially those in the early stages of developing their software solutions.
Palantir’s first-mover advantage puts it in a good position to grab a share of the large and growing AI market, Statista predicts., The AI market is expected to reach $184 billion in 2024, and could grow to $827 billion by 2030. Palantir’s revenue was $2.2 billion in 2023, so it’s well positioned to benefit from market growth.
Meta Platform
Like Palantir, Meta Platforms also stands to benefit greatly from the AI boom, but the opportunity is very different: Meta is primarily a social media networking and metaverse company, and so is embracing AI techniques to improve its product offerings for both users and advertisers.
For example, Meta is integrating AI across apps like Facebook, Instagram, WhatsApp, and Messenger to power personalized content feeds and recommendation systems. Better content recommendation systems lead to higher user engagement and drive user loyalty. Another example is using AI to automatically translate content languages, making it easier for users to access foreign content.
Similarly, Meta is leveraging AI to help advertisers get more out of their marketing spend. For example, AI helps advertisers analyze vast amounts of data, gain insights into trends, and provide strategy recommendations. While Meta doesn’t charge advertisers for the use of these AI tools, it indirectly benefits from the advertisers’ success, as advertisers with successful Meta campaigns are more likely to spend more on the Meta platform.
This is another big difference with Palantir: Palantir generates revenue directly from customers who use its AI platform, whereas Meta’s contributions to AI are indirect, making it difficult for investors to gauge how AI is impacting Meta’s overall financial performance.
On the plus side, Meta is an established tech giant with stable revenue and a strong balance sheet, making it a potentially lower-risk investment than smaller Palantir.
A word about the evaluation
Neither company looks cheap, especially when measured by traditional metrics like price-to-sales (P/S) and price-to-earnings (P/E) ratios: Palantir’s P/S is 29 and its P/E is 243, while Meta’s is 9 and 29.
By comparison, Palantir’s valuation is significantly higher than Meta’s, suggesting investors have higher growth expectations for Palantir. This isn’t surprising, considering that Palantir has a market cap of $64 billion and revenue of $2.2 billion, while Meta is a $1.28 trillion behemoth with sales of $134.9 billion. The smaller company seems like it has much more room to expand long term.
Still, it’s worth emphasizing that these companies have very different business models and therefore cannot be directly compared.
What are the better AI stocks to buy now?
The short answer is that there is no clear winner. Meta Platforms is an established and highly profitable technology giant that is actively adopting AI techniques to power its business, but does not directly profit from those AI tools. Meanwhile, Palantir makes money from AI software and tools, thus offering investors direct exposure to AI, yet its stock is much more expensive.
Investors should therefore focus on companies with which they feel more comfortable – companies with business models that are within their capabilities.
