Better AI Stocks: Palantir vs. Microsoft

An estimated $1 trillion will be invested in expanding artificial intelligence (AI) services in the coming years, in everything from graphics processors to software. Many tech companies will benefit from this huge investment, but which long-term AI stocks are the best to own?

Now let’s take a quick look at two major AI players: Palantir Technologies (NYSE:PLTR) And Microsoft (NASDAQ: MSFT) – to see how each of them is winning in their respective markets and which stock could be the better AI stock in the coming years.

The case for Palantir

Palantir has spent years developing advanced AI systems that government agencies use to sift through vast amounts of data and make the best decisions. A large portion of its revenue still comes from its government contracts – just over half – but the company has also expanded its AI footprint into the commercial sector in recent years.

Commercial segment revenue rose 33% in the second quarter (ended June 30) and accounted for approximately 45% of Palantir’s total revenue. Why is expanding commercial sales important to Palantir? Because it proves that the company’s AI technology is robust and can be reused in a fast-growing AI market.

Not all companies can claim that. Consider what Chief Technology Officer Shyam Sankar said on the company’s recent earnings call about its advantage over AI competitors: “Where the market has a complete bottleneck is in the transition from prototyping to production. And that happens to be the place where we are.” most differentiated.”

While others are catching up, Palantir has already benefited from years of AI investments. Management estimates that U.S. commercial sales will increase 47% to $672 million by 2024. Leadership also raised full-year sales expectations to a range of $2.74 billion to $2.75 billion – an increase of about 23% from last year.

The case for Microsoft

Microsoft may not be the most exciting name in AI right now, but it is certainly one of the most important. The company has already invested an estimated $13 billion in ChatGPT maker OpenAI, and its early bet in one of the most influential AI startups is already paying off.

Microsoft has quickly put its investment to work by integrating the underlying ChatGPT technology into its popular suite of Microsoft 365 software products, its GitHub developer platform and Azure cloud computing services.

The biggest AI opportunity of all of this probably comes from Azure. Microsoft next has the second largest cloud computing service by market share (currently 25%) Amazonand the new AI tools are expanding its reach. Management said during the fourth-quarter earnings call that Azure now has 60,000 AI customers, up about 60% from the prior year quarter.

The story continues

Why does this matter? Because revenue in the cloud computing market will grow to an estimated $2 trillion by 2030 Goldman Sachs. AI is already driving some of that growth, and Microsoft should benefit as more companies look to its AI cloud services to improve their own AI offerings.

Microsoft is the better AI stock

While Palantir offers a lot of opportunity in the AI ​​market, there are two reasons why I think Microsoft stock is the better option. First, it’s much cheaper than Palantir stock.

Microsoft stock currently has a price-to-earnings (P/E) ratio of 32. While not exactly cheap, it is much less pricey than Palantir’s forward price-to-earnings ratio of 87.

Secondly, Microsoft’s substantial investment in OpenAI and its position in the cloud computing market mean the company has access to some of the most advanced AI available today and a growing market in which to implement it.

With its cheaper price tag and a huge AI cloud market to capitalize on, Microsoft is now probably a better long-term AI play than Palantir.

Should You Invest $1,000 in Palantir Technologies Now?

Consider the following before purchasing shares in Palantir Technologies:

The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Palantir Technologies wasn’t one of them. The ten stocks that made the cut could deliver monster returns in the coming years.

Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $743,952!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.

View the 10 stocks »

*Stock Advisor returns September 23, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Amazon, Goldman Sachs Group, Microsoft, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.

Better AI Stock: Palantir vs. Microsoft was originally published by The Motley Fool