There hasn't been a more popular software stock than Palantir (PLTR +6.77%) in the market during 2024. The stock has risen around 258% this year and has been one of the best to own this year. However, the run-up brought hefty expectations, and investors may be forgetting about other software stocks with a strong investment case, like CrowdStrike (CRWD +1.07%).
Is Palantir the best software stock to purchase between the two? Or is CrowdStrike the better option here?
Palantir and CrowdStrike operate in huge growth markets
While both of these stocks sometimes have the "AI" moniker attached to them, they do not compete and are in separate industries.
Palantir makes specific use-case-built AI software that can be described as data in, insights out. This helps equip decision-makers within a business or government entity with the most up-to-date information possible. Furthermore, Palantir's latest product, Artificial Intelligence Platform (AIP), helps integrate large language models throughout a business's inner workings, a large step toward using AI integrally rather than a product used on the side.
NASDAQ: PLTR
Key Data Points
CrowdStrike is a cybersecurity company that provides many different solutions through its Falcon platform. Most notably, its endpoint protection software protects network access points from threats. It uses AI to analyze normal activity and potential threats, then shuts down the threat before it can do any damage. This is an incredibly popular cybersecurity solution, and CrowdStrike offers 28 modules that expand upon this base functionality.
Both companies are incredibly successful in terms of business growth, yet each has a massive industry they're playing in, as cybersecurity and AI application products have a huge runway.
CrowdStrike and Palantir are putting up similar financial results
Palantir's latest quarterly results drew huge applause from investors, as it sent the stock up over 20% the following trading day. Revenue was up 30% year over year to $726 million, and it gave guidance for revenue to come in around $769 million (indicating 27% growth) in the fourth quarter.
Those are excellent results, and many investors are ecstatic about them.
However, CrowdStrike has been doing that well (or better) for a much longer time.
CrowdStrike's quarterly results are shifted by one month compared to Palantir's, so we won't have CrowdStrike's Q3 fiscal year 2025 (ended Oct. 31) results until Nov. 26. However, we can compare how CrowdStrike expects to do in Q3 and its previous performance.
NASDAQ: CRWD
Key Data Points
In Q2 fiscal year 2025 (ended July 31), CrowdStrike's revenue rose 32% to $964 million, with its annual recurring revenue (ARR) rising 32% to $3.86 billion. So not only is CrowdStrike larger from a revenue standpoint, but it's also growing faster. For Q3, it expects revenue to come in around $982 million, indicating 25% growth.
That figure is heavily influenced by a computer crash that CrowdStrike contributed to in late July when a botched update crashed millions of devices. However, CrowdStrike CEO George Kurtz stated in its Fal.Con conference that their pipeline generation has returned to normal, so the effect of this crash on business was fairly minimal. As a result, I'd expect that CrowdStrike will likely exceed revenue expectations.
So, you have two companies that are both growing at a strong pace, at similar speeds, and around similar amounts of revenue. Additionally, both companies are involved in massive growth industries. How do we decide between the two? Easy. Look at the valuations.
Palantir's run-up has caused its valuation to swell beyond what is normal. It now trades for 55 times sales.
PLTR PS Ratio data by YCharts
That's more than double what you'll pay for CrowdStrike, making it nearly impossible to pick Palantir over CrowdStrike.
Palantir's price tag is so high that it's almost unjustifiable by itself in a vacuum. When you have other stocks putting up the same performance that trade for half the price, then it becomes an easy stock to pass up.
While Palantir has a lot of tailwinds blowing in its favor, so does CrowdStrike. With CrowdStrike offering similar levels of growth, it's a no-brainer pick for me over Palantir.
