In 2023, two of the top artificial intelligence (AI) stocks to own were Palantir (PLTR +0.52%) and C3.ai (AI +3.03%). The stocks have performed similarly, with Palantir up around 185% and C3.ai up around 180% year to date. Any investor would be extremely satisfied with those returns, but with such an impressive year, shareholders of each business are likely wondering if there's any more room to run in 2024.
So, of the two, which is a better investment moving forward? Let's find out.
C3.ai and Palantir are tackling different corners of the same market
Both C3.ai and Palantir provide AI solutions for their clients, and each is a critical supplier to various government departments. However, C3.ai is also heavily involved in the oil and gas space.
The key difference between the two providers is that C3.ai's products are mostly pre-built for a specific purpose that can be easily deployed to tackle tasks like machine reliability, analyze supply chains, and improve energy efficiency. Palantir's software is highly adaptable to any situation, giving it a broader use case at the cost of employing specialized engineers.
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However, with a wide need for various AI applications, there is a use for both products in today's marketplace.
Winner: Tie
Palantir is growing faster despite its size
Moving to finances, each is growing slightly slower than many AI investors might expect. In Q3, Palantir's revenue was up 17% to $558 million, while C3.ai's grew 17% to $73.2 million (for Q2 FY 2024 ending Oct. 31). Although each company grew at the same pace, Palantir is much larger, so growth should theoretically be harder to come by.
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As a result, I'll give Palantir the edge here in a face-value tie.
Looking ahead to next quarter, C3.ai's management expects 15% growth versus Palantir's projected 18%.
So, despite Palantir's size, it's beating C3.ai out on the growth front.
Winner: Palantir
C3.ai doesn't know what profits are
Transitioning to an area that some investors don't care about (although they should), we need to discuss each company's profit picture.
Palantir is already turning a profit and improving each quarter.
PLTR Profit Margin (Quarterly) data by YCharts
This is a huge win for the company, as it shows that management is serious about profits and has executed its plan to control expense growth.
C3.ai is essentially the exact opposite of that. In Q2 FY 2024, C3.ai had revenue of $73.3 million, but the cost of revenue and operating expenses totaled $152.6 million. That means C3.ai posted a horrendous operating loss margin of 108%. In C3.ai's defense, it is much smaller than Palantir and is still working to capture a massive generative AI opportunity management sees. However, it's a big concern with C3.ai that far in the hole.
Winner: Palantir
Palantir's dominance comes at a price
Palantir has clearly shown it's a much better business to invest in. But that doesn't come for free, as its stock trades at a premium to C3.ai.
AI PS Ratio data by YCharts
While 19 times sales isn't cheap for any software company, it's also a bit concerning because normally, that premium is reserved for companies growing their revenue by at least a 30% pace.
C3.ai's premium is a bit more reasonable, but for 12 times sales, many stocks are growing faster and are closer to breaking even.
Therefore, I'd caution all investors against taking a position in either Palantir or C3.ai, as they are priced for perfection and need growth acceleration to justify their current valuations.
However, if you need to buy one, Palantir is a much better investment than C3.ai.
