Data has become technology's most precious resource. It's even been said that data is the oil of the 21st century. Yes, data plays a critical role in developing artificial intelligence (AI) models, but its purpose goes far beyond that. Data helps companies better understand their customers. It helps manufacturers improve their supply chains.
There are endless applications for data, and the companies that do it best have a leg up on the field. However, data by itself can be messy and unusable. It's up to companies like Palantir Technologies (PLTR 3.73%) and Snowflake (SNOW 3.69%) to help organizations analyze and apply their data.
These two companies serve different purposes, but which stock is better to buy today and hold for the future? That's a complicated question, but there is an answer.
Introducing Palantir Technologies and Snowflake
Palantir Technologies is a software company that builds custom applications to analyze and use data using a combination of artificial intelligence, machine learning, and analytics. It operates three software platforms:
- Gotham: Aids in real-time decisions and operations, used extensively by government and public organizations.
- Foundry: Functions like an enterprise operating system, helping find efficiencies and trends.
- AIP: Helps customers create and deploy AI applications.
The company worked heavily (and still does) with the U.S. government but is growing rapidly in the private sector. Its applications range from detecting money laundering to optimizing supply chains and deploying resources in a natural disaster. Its flexibility gives it a lot of growth potential.
Snowflake is a data cloud company, which means customers can upload their data into Snowflake's cloud-based ecosystem. There, it's securely stored and can be easily searched, analyzed, and manipulated as needed via a long list of third-party apps that integrate directly into Snowflake. Essentially, Snowflake helps customers take their messy data and organize it neatly in a virtual database.
Additionally, Snowflake runs a marketplace where different organizations can share data and buy access to third-party data sources. Ultimately, Snowflake wants to become the go-to partner for organizations and their data needs.
Looking at growth and financials
I took consensus analyst estimates and trailing-12-month (TTM) financial data to look at revenue, estimated revenue growth for the current fiscal year, the percentage of revenue converted to free cash flow over the past four quarters, and long-term estimated earnings growth rates.
The direct comparison is below. Snowflake isn't quite as profitable as Palantir today, but the company is growing faster, and analysts expect rapid earnings growth over the coming years. Palantir is no slouch, but it's not as prolific as Snowflake today.
| Company | TTM Revenue | Estimated Revenue Growth | Free Cash Flow % | Long-Term Estimated EPS Growth |
|---|---|---|---|---|
| Palantir Technologies | $2.2 billion | 20% | 31.3% | 47% |
| Snowflake | $2.6 billion | 35% | 24.2% | 61% |
Data source: Ycharts. EPS = earnings per share.
All things being equal, investors should be happy to own either company because it's evident in their financials that their products and services are in demand and their long-term growth estimates could create some remarkable investment returns. Ultimately, the winner in this battle will come down to how much the market wants investors to pay for each stock.
The winner is...
One of my role models, all-time investing great Peter Lynch, favored the PEG ratio when evaluating stocks because it shows investors how much they pay for a company's growth. It's calculated by dividing a stock's valuation by its growth rate (lower is better). Based on the below chart, Palantir's PEG ratio is 1.6 versus Snowflake's 3.3.
PLTR PE Ratio (Forward) data by YCharts
Generally, I prefer a PEG ratio of around 1.5 or lower. Going beyond that can mean you risk overpaying for a stock, which could result in poor investment returns while the business catches up to its share price. Wall Street loves Snowflake stock. While it's a fundamentally excellent company, that's a steep price, and investors could be better off waiting for a better opportunity.
Palantir isn't cheap either, but it's close enough to that 1.5 PEG ratio that someone could make a sound argument for buying and holding the stock at today's share price. That makes it today's winner, though both companies easily warrant a spot in your long-term portfolio -- at the right price.
