The excitement surrounding data analytics investments is firmly grounded in reality, underscored by the rapid advancements in artificial intelligence (AI) and the ever-increasing flow of data.
Companies across the board are eager to harness real-time data to fuel their AI systems, aiming to unlock significant business advantages. Specialists in data analytics play a crucial role in both streamlining the process of feeding new data into the AI engines and empowering organizations to make data-driven business decisions.
On that note, let me show you two fantastic investment opportunities in today's data analytics industry. Palantir (PLTR 3.73%) is an innovative market darling with room to grow. IBM (IBM -1.05%) is an old-school tech titan with a new lease on life in the AI era.
Palantir: Richly valued for good reasons
Data analytics expert Palantir is not a cheap stock. The share price has more than tripled over the last year and Palantir trades at nearly 300 times trailing earnings or 27 times sales.
With these lofty valuation ratios, one might expect Palantir to a small-cap start-up with skinny profit margins supported by modest yet skyrocketing sales. But its annual sales passed the $2 billion benchmark last year and Palantir's net profit margin stands at a robust 9%. The year-over-year revenue growth stopped at 17% in 2023, down from 24% in 2022 and 41% before that.
Yet, Palantir has earned its nosebleed-inducing valuation by plotting a clear path to continued growth.
The company started as a specialist in defense solutions. That's still an important business but Palantir is expanding its reach to commercial clients, too. Commercial sales are growing faster than government revenues, accounting for 45% of total sales last year. And the shift is accelerating right now. Looking ahead to fiscal year 2024, Palantir's management expects total revenues to increase by roughly 20%. However, U.S. commercial sales should lead the charge with a jump of "at least 40%."
Keep in mind that government contracts often come with lower profit margins than business-to-business services, and you're looking at a promising recipe for profitable growth. Palantir's business is expanding in a more lucrative direction, as the company becomes a leading provider of AI-based data analytics tools. Yes, AI analytics can optimize the data feed that becomes the next generation of machine learning or large language model (LLM) AI platforms.
Palantir's commitment to advancing AI and machine learning innovation places it at the forefront of analytics technology, enhancing its platforms with AI-driven insights and predictive analytics. This commitment not only enriches its service offerings but also lets clients make the most of their data in sophisticated and impactful ways. The scalability of Palantir's solutions makes defense-quality data analytics available to anyone, letting organizations of any size benefit from the company's cutting-edge AI technology.
Through these strategic advantages, Palantir Technologies has carved out a leading position in the data analytics and AI sector, demonstrating a clear path for continued growth and innovation. So the stock may be expensive, but for all the right reasons. The company should grow into its roomy boots over time, supporting its market value with stronger profits and continued top-line growth.
Don't forget about IBM
Big Blue rarely shows up in the AI conversation, and since most investors prefer to focus on newer and fresher names. A shorter operating history can be OK as long as the growth story looks good, right?
Well, good old IBM actually combines the best qualities of an experienced tech giant and an exciting AI expert. The company is entering an impressive growth phase, powered by cloud computing and AI services, that should drive sales and free cash flows dramatically higher over the next few years. But most investors haven't noticed this unstoppable growth spurt yet, so the stock trades at the modest valuation ratios of 24 times earnings and 2.9 times sales.
If Palantir's valuation is too rich for your blood, IBM could be the value-priced AI investment you're looking for.
And AI-assisted data analytics play a massive part in IBM's future growth story. It's anchored by the powerful Watson AI platform, and its data analytics services are a cornerstone of IBM's offerings in the cutting-edge technology landscape.
Watson AI uses advanced machine learning and natural language processing to analyze vast data sets, enabling businesses to uncover insights, predict outcomes, and make data-driven decisions with unprecedented accuracy and speed.
That sounds a lot like Palantir, but it's not the whole story. Beyond this fundamental analytical prowess, Watson's applications span a broad range of industry-specific features. In healthcare, it assists in diagnosing diseases and recommending treatments. In finance, IBM's Watson enhances risk management and customer service. And that's just a fleeting glance at a robust sector-spanning portfolio.
IBM complements Watson's AI capabilities with a robust suite of analytics tools and cloud services. Together, these tools provide a comprehensive ecosystem that supports the entire data lifecycle from collection and storage to analysis and visualization. This holistic approach helps clients leverage their data to the max, driving innovation and efficiency across their operations.
Investors started to open their eyes to IBM's AI-driven prospects around January's earnings report. The stock has gained 20% in three months and 30% in half a year, but IBM's shares are still cheap in comparison to other AI investments. If you don't have any Big Blue shares in your portfolio yet, this would be a good time to grab a few shares on the cheap. I don't know how much longer the bargain-bin stock price will last.
Image source: Getty Images.
If you believe in the transformative power of AI and data analytics, both Palantir and IBM deserve a spot on your watchlist. The market's always evolving, and sometimes the best moves are made when others aren't paying attention.
