Palantir Technologies' (PLTR +1.10%) stock has soared about 360% over the past 12 months. The bulls rushed back to the artificial intelligence (AI)-driven analytics company as its revenue growth accelerated and its profits surged. Its inclusion in the list of stocks on the S&P 500 and Nasdaq-100 indexes in the fourth quarter, along with hopes for lower interest rates, amplified those gains.
Palantir's revenue rose 17% in 2023 and 29% in 2024, and it expects 31% growth in 2025. It also turned profitable in 2023 and more than doubled its EPS in 2024, and analysts expect 63% growth in 2025.
That explosive growth is being driven by the rapid expansion of its U.S. commercial business, a reliable stream of government contracts, and the rising usage of its analytics platform to support new generative AI applications.
Image source: Getty Images.
Those catalysts turned Palantir into one of the market's hottest AI stocks. But at $120, Palantir trades at a whopping 385 times forward earnings with an enterprise value of $264.7 billion -- which is roughly 70 times its projected sales for 2025.
Those bubbly valuations make Palantir an extremely risky stock to buy, and its price could easily be cut in half and still be expensive relative to its growth potential. So instead of chasing Palantir's recent rally as the market hovers near its all-time highs, it might be smarter to buy these two more balanced AI plays instead: Accenture (ACN +0.20%) and AppLovin (APP 1.29%).
The conservative AI play: Accenture
Accenture is one of the world's largest IT service providers. It serves more than 9,000 clients across a wide range of industries in over 120 countries, and it helps those large companies digitally transform their sprawling businesses.
NYSE: ACN
Key Data Points
Accenture's revenue rose 15% in fiscal 2022 (which ended in August 2022), but only grew 4% in fiscal 2023 and 1% in fiscal 2024. That deceleration was caused by rising rates, geopolitical conflicts, and other macro headwinds which drove many companies to rein in their spending. A strong dollar also eroded its overseas earnings.
However, the bright spot was its generative AI (GenAI) business, which grew its total revenue ninefold from $100 million in fiscal 2023 to nearly $900 million in fiscal 2024. That only accounted for 1.4% of its fiscal 2024 revenue, but its rapid growth could offset the slower growth of its more macro-sensitive non-AI businesses.
From fiscal 2024 to fiscal 2027, analysts expect its revenue to grow at a compound annual growth rate (CAGR) of 7% as the macroeconomic environment stabilizes, more companies enlist its IT professionals to upgrade their cloud infrastructure and AI services, and it acquires more companies. On the bottom line, the analysts expect its EPS to grow at a CAGR of 11% as it prunes its workforce, automates more positions, and cuts its other expenses.
Accenture isn't an explosive growth play like Palantir. But its stock is reasonably valued at 28 times next year's projected earnings, and it's a balanced way to profit from the ongoing expansion of the cloud, AI, and digital transformation markets.
The aggressive AI play: AppLovin
AppLovin publishes mobile apps and develops AI-powered app monetization tools for other companies. It expanded its digital advertising business by acquiring several of its industry peers, including MoPub and Wurl, over the past four years.
NASDAQ: APP
Key Data Points
In 2022, AppLovin's revenue growth flatlined and it turned unprofitable. It struggled as its app monetization business cooled off in a tougher macro environment. But in 2023, its revenue grew 17% and it turned profitable again. It recovered as the digital advertising market warmed up again and more companies adopted its AI-powered AXON ad discovery services. In 2024, its revenue surged 43% -- driven by its 73% growth in advertising revenue -- as its net income more than quadrupled.
During AppLovin's latest conference call, CEO Adam Foroughi said while the company was "really, really early" in its AI development cycle, its AI models could "get better." Specifically, Foroughi expects large language models (LLMs) and generative AI to help its AXON ad discovery tools place ads more effectively than older AI models.
From 2024 to 2026, analysts expect AppLovin's revenue to grow at a CAGR of 22% as its net income increases at a CAGR of 42%. Its stock might seem a bit pricey at 80 times forward earnings, but its balanced exposure to the growing mobile app, digital advertising, and AI markets could justify that higher valuation. Its growth trajectory also looks a lot more sustainable than Palantir's meme stock-like gains over the past year.
