For the last two years, technology stocks have been rocking thanks to an overwhelmingly bullish narrative surrounding artificial intelligence (AI). Among AI's biggest winners have been software businesses, a theme that I don't see changing anytime soon.
Below, I'm going to compare two of the biggest names in enterprise software benefiting from the AI revolution: Palantir Technologies (PLTR +1.32%) and Salesforce (CRM +0.51%). While each appears well positioned to continue riding the AI wave, I see Palantir as the superior choice for growth investors.
Let's dig into how each of these software leaders is affecting the AI sector and assess why I think Palantir will become the bigger company by the end of the year.
Palantir vs. Salesforce
As of this writing (Feb. 10), Salesforce has a larger market capitalization than Palantir by roughly $52 billion. With that said, the underlying trends shown in the chart below are quite interesting.
Check out the difference between how each company's valuation has moved since AI emerged as the next megatrend. Over the last couple of years, Palantir's valuation has expanded significantly. By contrast, Salesforce's price movement has exhibited far more ebbs and flows. As a result, there's a clear convergence seen in the graph below with Palantir's market value starting to encroach on that of Salesforce.
CRM market cap, data by YCharts.
What tailwinds does each software company have?
Salesforce owns a number of properties including data analytics platform Tableau and messaging tool Slack. The company's prior strategy of acquiring competing businesses and integrating them with the core ecosystem helped build an end-to-end software suite that offers businesses a variety of data-driven applications, but investors eventually grew tired of such an approach.
NASDAQ: PLTR
Key Data Points
For the last couple of years, Salesforce has been under enormous scrutiny from Wall Street to start delivering more robust revenue acceleration and profit margin expansion excluding inorganic assets purchased through acquisitions.
I'll admit that Salesforce has made good on this promise ... for the most part. The issue Salesforce continues to face revolves around consistency. In other words, sometimes the company blows Wall Street's expectations out of the water, while at other times investors are left scratching their heads questioning what is going on in execution.
For this reason, I'm not entirely sold that Salesforce is going to dominate its pocket of the AI realm. Specifically, the company's newest area of interest, called agentic AI, faces fierce competition -- namely from Microsoft, a much larger company with a stronger balance sheet.
When you add in that Salesforce faces a number of tangential competitors, including Monday.com, HubSpot, Atlassian, Asana, Workday, and more, I'm hard-pressed to see how it navigates amid all of these businesses.
On the flip side, Palantir -- which is much smaller than Salesforce in revenue and earnings -- is partnering with the likes of Microsoft, Meta Platforms, Amazon, and Oracle. To me, big tech's decision to work alongside Palantir as opposed to launching competing products represents enormous potential since the company continues to scale up its biggest driver of growth, the Palantir Artificial Intelligence Platform (AIP) software suite.
Image source: Getty Images.
Looking at the future
The chart below illustrates consensus estimates among Wall Street analysts for growth in revenue and earnings per share (EPS) between Salesforce and Palantir.
CRM revenue estimates for current fiscal year; data by YCharts.
The dichotomy shown above is obvious: Wall Street is estimating far less acceleration for revenue and earnings for Salesforce compared to Palantir over the next two years. My interpretation of these forecasts is that analysts may see more competitive headwinds for Salesforce when compared to Palantir.
To be fair, this should be expected to some degree. Salesforce is a much larger enterprise than Palantir, and so at some point the company's growth profile is going to mature.
NYSE: CRM
Key Data Points
However, I have not fully bought into that idea because AI is supposed to represent transformative opportunities for businesses of all sizes. Given the mundane growth profile for Salesforce, I'm wondering if Wall Street shares my suspicion that AI may not be as influential for the company as it could be for other software businesses, such as Palantir.
For these reasons, I would not be surprised to continue witnessing some inconsistent trends in Salesforce throughout this year (and maybe even longer). By contrast, Palantir's prospects look strong, and I think investors could continue cheering on the stock -- propelling its valuation even higher during 2025.
I think there could be some contraction in Salesforce's market cap and even more expansion in Palantir's, thereby tightening the gap between the two companies even further. If this happens, I think Palantir will emerge as the more valuable business by the end of the year.
