In this piece, I evaluated two artificial intelligence (AI) stocks, C3.ai (NYSE:AI) and Palantir Technologies (NYSE:PLTR), using TipRanks’ comparison tool to determine which is better.
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C3.ai has already more than doubled year-to-date, while Palantir stock is up 27%, so is there any upside left? Neither company is profitable, so investors may want to keep that in mind. On the one hand, hedge funds and insiders have each dumped about 3 million shares in Palantir recently, while there haven’t been any major changes at C3.ai.
However, on the other hand, it takes a deeper analysis to determine whether there might be any more upside left in the shares. AI stocks, in general, have become hot, and C3.ai is one of the very few pure-play names, while Palantir addresses other corners of the software market. When digging deeper, though, it looks like PLTR is the better stock, so let’s take a look.
C3.ai (NYSE:AI)
C3.ai is growing at a rather slow pace for a technology stock (14.6% revenue growth for the trailing year and a -4.4% decline in the most recent quarter), suggesting that much of the recent hype could be due to its pure-play status in artificial intelligence rather than its own fundamentals. However, it has a solid balance sheet with plenty of cash relative to its liabilities, suggesting a neutral view might be appropriate after the recent surge in its stock price.
C3.ai was founded in 2009 but went public in December 2020. Of course, there was the initial pop in response to the initial public offering, but since then, the stock’s performance has been lackluster until this year. The company’s management said in their recent earnings release that C3.ai is on track to become “cash-positive and non-GAAP profitable” by the end of Fiscal 2024.
However, they gave no guidance on GAAP (generally accepted accounting principles) profitability. GAAP profitability represents true profitability. It demonstrates a company’s complete stability because it factors in things like stock-based compensation, which has been hotly debated among investors for years.
In short, C3.ai appears to be on solid footing for the near term, but the recent hype on AI stocks has sent the company’s valuation soaring, and analysts seem to agree about the valuation as well.
What is the Price Target for AI Stock?
C3.ai has a Hold consensus rating based on three Buys, three Holds, and two Sell ratings assigned over the last three months. At $21.75, the average C3.ai stock price target implies downside potential of 12.4%.
Palantir Technologies (NYSE:PLTR)
Palantir is growing at a much faster rate than C3.ai (23.6% revenue growth in the past year) and is much more well-established, with $1.9 billion in revenue for 2022. Additionally, its price-to-sales (P/S) ratio is slightly below C3ai’s, and its recent jump into profitability demonstrates its stability. Thus, a bullish view seems appropriate for Palantir for now.
Palantir defines itself as a software company that builds “digital infrastructure for data-driven operations and decision-making.” Artificial intelligence plays a role in the digital infrastructures it builds but is not the central point of what Palantir does. Gotham, which is defined as an “AI-ready operating system,” is just one of the company’s listed platforms, with the others being the environment-agnostic Apollo and the real-time connectivity platform Foundry.
Like C3.ai, Palantir went public in late 2020. However, unlike C3.ai, it just reported its first profitable quarter in February and expects to remain profitable this year as it tightens spending. In fact, management said they’re reaching sustained GAAP profitability about two years ahead of their previous expectations.
With a P/S ratio of 9.0 versus C3.ai’s P/S of 10.4, Palantir is more attractively valued, especially given that its fundamentals play more of a role in its valuation rather than being driven purely by AI hype.
What is the Price Target for PLTR Stock?
Palantir Technologies has a Hold consensus rating based on two Buys, seven Holds, and five Sell ratings assigned over the last three months. At $8.59, the average Palantir Technologies stock price target implies upside potential of 5.7%.
Conclusion: Neutral on AI, Bullish on PLTR
Neither of these stocks is particularly cheap, but Palantir looks like the better choice for now. It’s cheaper, much more well-established, profitable, and growing faster than C3.ai. Over the long term, Palantir looks like a solid play, but that doesn’t mean C3.ai won’t become one.
Investors looking for a pure AI play to hold for the long term might still consider C3.ai, albeit with the caveat that this is a risky buy right now on a company that’s years away from GAAP profitability. They may want to consider whether an unprofitable company with less than $270 million in revenue for the last 12 months deserves a $2.8 billion market capitalization.
