Artificial Intelligence (AI) holds the capability to transform virtually every sector imaginable, prompting companies to invest significantly to remain competitive. AI-driven applications can streamline routine duties and enhance the effectiveness of knowledge employees as they perform their roles. Additionally, this technology aids leaders in integrating pertinent information swiftly, enabling them to reach well-informed decisions more quickly.
The market for enterprise AI software is projected to expand from $98 billion in 2024 to $391 billion by 2030, as stated by ABI Research. Solutions such as generative AI, including AI agents, are anticipated to see an even more rapid growth. At the vanguard of this trend are two leading enterprises specializing in AI-driven software solutions. Palantir Technologies (NASDAQ: PLTR) and Microsoft (NASDAQ: MSFT) .
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Both shares have surged during the present bullish market conditions, yet the The recent decline might present a good chance to buy. For one of them, this is currently the superior choice for an artificial intelligence stock.
Palantir: Boosting Growth with Its New AI Platform
Palantir develops software designed to consolidate information from various aspects of an organization’s activities and generate useful actions based on this data for its clients. With the launch of their Artificial Intelligence Platform (AIP), utilizing their analytics tools has become more accessible as it allows interaction via natural language, leveraging AI capabilities. large language models . That drove an acceleration in Palantir's results over the last two years.
In 2024, Palantir experienced a 29% increase in revenue compared to the previous year, with its adjusted operating margin rising to 39% from 28%. During the final quarter, these figures were even more impressive, showing a revenue growth rate of 36% and an adjusted operating margin of 45%. For fiscal year 2025, company leaders predict a continued rise in revenue by 31%, alongside an expansion of the adjusted operating margin to 42%.
Palantir derives substantial advantages from scaling as a software firm due to negligible additional expenses per user. The company’s strategy, led by CEO Alex Karp, prioritizes developing top-notch products initially for a carefully chosen clientele who can afford premium services. With each enhancement and new feature added to their offerings, Palantir attracts a wider array of corporate customers. AI capabilities have played a crucial role in broadening the application scope of their solutions across various industries.
Palantir operates primarily through two main sectors: governmental and commercial. Initially, they focused solely on addressing issues faced by the U.S. armed forces, with their government division continuing to generate most of their income. These government agreements tend to be quite stable, providing a strong foundation of earnings for Palantir.
Despite this, Palantir might encounter challenges due to rising geopolitical strains and potential reductions in U.S. governmental expenditures. The Department of Defense, like the broader federal sector, is confronting significant financial constraints, potentially harming Palantir’s primary income stream. Conversely, others argue that these fiscal cutbacks could actually be advantageous for Palantir since they enhance workforce productivity and efficiency, thereby boosting demand for its software should the armed forces downsize their personnel.
Despite the current political strains, Palantir aims to emphasize its achievements beyond governmental projects. At their recent AIPCon event, they showcased an array of international commercial customers signing up. With this increasing base of commercial clients, Palantir seems well-positioned for sustained robust income expansion along with improved operational margins.
The big problem with Palantir stock, though, is its valuation. Even after the recent sell-off, shares trade for over 70 times its 2024 revenue as of this writing. If you use management's 2025 outlook, the price is 55 times its projected sales for the current year. Only a few stocks have been trading at such an enormous valuation ratio. Moreover, history did not favor purchasing them at costs similar to Palantir's.
Microsoft: A Pioneer in Artificial Intelligence on Two Fronts
Microsoft propelled itself to the leading edge of the AI conversation by injecting $10 billion into this area. investment in OpenAI In early 2023, it emerged as a frontrunner in both segments of the expanding artificial intelligence industry: cloud services and business applications.
Over the past two years, Microsoft’s cloud computing service, Azure, has experienced significant expansion as companies seek to leverage computational resources and fundamental models through the cloud to create novel AI-driven offerings either for internal use or to enhance customer experiences with AI-enabled features. The company reported that revenues from AI services on Azure surged by 157% compared to the same period the previous year, driving an overall increase of 31% within the cloud-computing sector during its latest reporting cycle.
The management mentioned that the demand for AI services surpassed their current capabilities, suggesting potential for accelerated growth ahead. Recognizing this, Microsoft is undoubtedly committing resources to capitalize on these opportunities. This fiscal year, they plan to allocate approximately $80 billion towards capital investments, primarily focused on building AI-centric data centers. Such increasing expenditure aims to cater not only to the rising demands of their Azure cloud service but also to further advance their internal AI initiatives.
In this effort, Microsoft created a series of AI assistants known as Copilot, designed for integration into multiple software ecosystems such as GitHub, Microsoft 365, and Dynamics 365. They also provide an independent Copilot application. Companies have access to Microsoft’s Copilot Studio to leverage their proprietary information and resources. develop their own AI agents To assist them in automating tasks and highlighting valuable information for employees. The early implementation of Copilot contributed to increased earnings and broader profit margins for Microsoft's Productivity and Business Processes division.
While Microsoft may not be expanding as rapidly as Palantir, its stock still offers a considerably more affordable valuation considering the significant growth it delivers to shareholders. At present, you can purchase the stock for under 11 times its trailing sales. In terms of profitability, the shares are priced around 29 times analysts' projections for earnings per share over the coming year. Although neither figure stands out as exceptionally low, these multiples do fall beneath Microsoft’s historical averages since early 2021. Given its leading position in artificial intelligence across dual sectors, the firm unquestionably merits some level of premium valuation. The current pricing appears quite appealing relative to this value proposition.
After the recent downturn in both stocks, Microsoft appears to be a significantly more attractive purchase compared to Palantir.
Is investing $1,000 in Palantir Technologies at this moment a good idea?
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Adam Levy The Motley Fool holds stakes in both Microsoft and Palantir Technologies, expressing preference for these companies. Additionally, they recommend specific financial instruments such as purchasing long-term call options at $395 per share for January 2026 from Microsoft, alongside selling short-term call options at $405 per share under similar conditions. They also maintain their disclosure policies accordingly. disclosure policy .
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