An unprecedented $1 trillion is set to flow into the expansion of artificial intelligence (AI) services in the upcoming years. This boom will cover a wide spectrum, from graphics processors to software development. While numerous tech firms stand to gain from this massive influx of funds, the focus now turns to discerning the frontrunners in the long-term AI stocks landscape.
An In-Depth Look at Palantir
Palantir Technologies (NYSE: PLTR) has dedicated years to crafting sophisticated AI systems predominantly utilized by government agencies to navigate vast datasets and derive optimal strategies. Although a significant portion of its revenue still originates from government contracts (over 50%), Palantir has successfully broadened its AI reach into the commercial realm in recent years.
The second quarter witnessed a remarkable 33% surge in commercial segment revenue, accounting for nearly 45% of Palantir’s total sales. This diversification into commercial sales underscores the robustness of Palantir’s AI technology and its scalability in a rapidly expanding market.
Chief Technology Officer Shyam Sankar highlighted Palantir’s edge over AI rivals during a recent earnings call, emphasizing the company’s prowess in transitioning from prototyping to production — a bottleneck for many in the field.
While competitors scramble to catch up, Palantir is already reaping the rewards of its longstanding AI investments. Management projects a 47% surge in U.S. commercial sales by 2024, reaching $672 million. The company has also raised its full-year sales guidance to a range of $2.74 billion to $2.75 billion, marking a 23% increase from the previous year.
The Microsoft Narrative
Microsoft (NASDAQ: MSFT) may not be the flashiest name in the realm of AI currently, but it undoubtedly holds a pivotal role. With a whopping $13 billion stake in ChatGPT creator OpenAI, Microsoft’s early gamble in this influential AI startup is yielding dividends.
Leveraging their investment, Microsoft swiftly integrated the ChatGPT technology into their popular suite of Microsoft 365 products, the GitHub developer platform, and Azure cloud services.
Azure presents the most significant AI opportunity for Microsoft. The tech giant ranks second in market share for cloud computing services (currently at 25%), trailing only Amazon. Microsoft’s novel AI tools are broadening its Azure footprint, as indicated in their recent earnings call, citing a 60% surge in AI customers compared to the previous year.
This strategic positioning is crucial considering projections by Goldman Sachs indicating a steep rise in cloud computing market revenue to $2 trillion by 2030, with AI playing a pivotal role in this growth trajectory. Microsoft stands to benefit as more enterprises turn to its AI cloud solutions to augment their own AI capabilities.
The Victor Emerges: Microsoft
While Palantir exhibits promising prospects in the AI arena, Microsoft appears as the superior investment option for two primary reasons. Firstly, Microsoft’s shares are significantly more affordable compared to Palantir’s, with a forward price-to-earnings ratio (P/E) of 32, versus Palantir’s lofty forward P/E of 87.
Secondly, through substantial investments in OpenAI and its strong foothold in cloud computing, Microsoft boasts access to cutting-edge AI technology and a burgeoning market to deploy it. With a more attractive price point and a vast AI cloud market to capitalize on, Microsoft emerges as a more compelling long-term AI investment over Palantir.
Investment Consideration for Palantir Technologies
Prior to investing in Palantir Technologies, investors should take heed of this critical insight:
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