Palantir Technologies' (PLTR 3.73%) stock has surged more than 150% over the past 12 months as the developer of data mining and analytics software impressed investors with its stabilizing revenue growth and improving profitability. Those improvements were largely driven by the accelerating growth of its U.S. commercial business, which offset the slower growth of its government business, a reduction in its stock-based compensation, and disciplined cost-cutting measures.
The bulls also cheered Palantir's recent rollout of artificial intelligence (AI)-powered tools, which will enable its clients to build their own AI apps. But as I noted earlier this month, Palantir's stock still looks too expensive relative to its growth rates.
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For 2024, analysts expect Palantir's revenue and adjusted earnings to grow 22% and 36%, respectively. But its stock doesn't look cheap at 74 times forward earnings and 19 times this year's sales.
If the market revalues Palantir as just another growth stock instead of an AI play, its upside could be limited. So, instead of chasing Palantir's recent rally, I believe investors should consider buying three other growth stocks with millionaire-making potential instead: Uber Technologies (UBER -0.38%), Duolingo (DUOL 3.64%), and Workday (WDAY -1.19%).
1. Uber
Uber's stock has soared 120% over the past 12 months and is trading near its all-time high. The bulls rushed back as the mobility and delivery services provider's revenue growth stabilized, its take rates improved, it divested its lower-margin businesses, and it finally turned profitable on a generally accepted accounting principles (GAAP) basis.
From 2023 to 2026, analysts expect Uber's revenue to grow at a compound annual growth rate (CAGR) of 16%, its operating margin to more than triple from 3% to 13%, and for its net income to increase at a CAGR of 48%. That rapid growth should be fueled by its market share gains across the ride-sharing and delivery markets, its ability to hike its prices to boost its take rates, and the dilution of its costs with economies of scale.
Uber's future looks bright, but its stock still looks reasonable relative to its growth rates at 60 times forward earnings and 4 times this year's sales. With 150 million monthly active customers at the end of 2023, Uber should continue to crush smaller competitors like Lyft as it capitalizes on the secular expansion of the ride-hailing and food delivery markets.
2. Duolingo
Duolingo's stock price has nearly doubled over the past 12 months, but it remains about 25% below its all-time high from last December. The online learning company owns the most downloaded online learning app in the world, with 83.1 million monthly active users.
Duolingo provides online courses for over 40 languages, a stand-alone English proficiency test, and newer apps for learning phonics, math, and music. It disrupted many of its legacy competitors by gamifying the learning experience with gems and rewards, and it became immensely popular during the pandemic.
Duolingo's growth cooled off after the pandemic passed, but analysts still expect its revenue to grow at a CAGR of 29% from 2023 to 2025. It also turned profitable on a GAAP basis over the past year as it reined in its spending, and analysts expect its net income to rise at a CAGR of 177% from 2023 to 2025. That growth should be driven by its disruption of the online education market and the expansion of its platform beyond its core language lessons.
Duolingo's stock might seem pricey at over 200 times forward earnings, but it still looks reasonably valued at 45 times its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and nine times its estimated sales for 2024.
3. Workday
Workday disrupted the human capital management (HCM), payroll, and budgeting software markets with its cloud-based services, which streamlined the process and locked in its customers with sticky subscriptions. It subsequently expanded that ecosystem with cloud-based student information management services.
Workday, like many of its cloud-based software peers, profits from the digital transformations of large businesses. That secular trend is resistant to the macro headwinds since economic downturns often drive companies to accelerate their digital transformations and replace their human employees with automated software.
Workday's subscription backlog is still growing, and its margins are expanding. Analysts expect its revenue to rise at a CAGR of 17% from fiscal 2023 (which ended last January) to fiscal 2026 as its adjusted EBITDA grows at a CAGR of 22%. They also expect it to finally turn profitable on a GAAP basis in fiscal 2024.
Workday trades at 10 times this year's sales and 38 times its adjusted EBITDA. It isn't cheap, but it still has plenty of room to run as the cloud-based HCM market expands. Its recent introduction of the Workday AI Marketplace, which hosts custom AI and machine learning apps for its platform, also makes it an underrated play on the AI market.
