Palantir (NASDAQ: PLTR) is a stock that I’ve had on my watchlist for a while now. I can see myself owning it one day.
However, right now, I prefer another AI stock. It’s trading at a far lower valuation than Palantir and I think there’s more chance of its doubling in the years ahead.
A crazy valuation
There’s no doubt that Palantir is an amazing business. This is a data company that’s at the heart of the artificial intelligence (AI) revolution. And it’s growing at an incredible pace. Last quarter, for example, revenue was up 39% year on year to $884m.
I just can’t get my head around the valuation, however. Currently, the company has a market cap of around $361bn. Yet, this year, its sales are only projected to be about $3.9bn. So, we’re looking at a price-to-sales ratio (not price-to-earnings) of about 93.
That’s an eye-wateringly high sales multiple. And it adds a lot of risk for investors. For reference, Nvidia trades on a price-to-sales ratio of about 27. So, Palantir is far more expensive than that stock (which is generally considered to be expensive).
A cheaper AI stock
One AI stock that’s a fair bit cheaper than Palantir is Snowflake (NYSE: SNOW). It’s a data storage and analytics business.
It’s not growing quite as fast as Palantir. But it’s still growing at a prolific rate. Last quarter, product revenue came in at $996.8m. That figure was up 26% year on year.
Zooming in on the valuation, the market cap is $71bn while sales of $4.5bn are expected this financial year (ending 31 January 2026). So, we have a price-to-sales ratio of about 16. That’s still high. But I’m comfortable with it given the level of top-line growth.
Which stock will double first?
Comparing the two stocks, I reckon there’s more chance of Snowflake doubling in value in the medium term. If the strong growth continues (and it may not), I could see its market cap getting to $142bn in the next few years, especially if the company continues to improve its level of profitability.
I’m not sure Palantir can get to a market cap of $722bn in the coming years, however. For that to happen, sales growth would have to pick up materially and the valuation would have to climb even higher.
I’ll point out that I think there’s a chance that Snowflake could potentially play ‘catch up’ on Palantir in the years ahead. Since the two businesses became public companies in the second half of 2020, Palantir has generated far higher returns (1,500% for Palantir versus -10% for Snowflake).
I’m backing Snowflake
Now, of course, my predictions could turn out to be completely wrong. With these kinds of growth stocks anything can happen.
Snowflake, for example, could lose market share to competitors and see its growth slow and its share price fall. Alternatively, Palantir could see more interest from institutional investors, boosting its share price.
I reckon Snowflake is the safer bet today, however. That’s the stock I own and I believe it’s worth considering on pullbacks.
