In the rapidly growing field of Artificial Intelligence (AI), both Palantir Technologies ( $Palantir Technologies Inc.(PLTR)$ ) and Amazon ( $Amazon.com(AMZN)$ ) are notable contenders with promising platforms that cater to diverse AI-driven needs across industries. Given the bullish outlook by IDC on AI-platform spending, which is projected to compound at an annual growth rate of 51% through 2028, it's essential to analyze the fundamentals of these companies to gauge their potential and sustainability in this expanding market.
Palantir Technologies
Palantir, primarily known for its sophisticated data analytics software including Foundry and Gotham, has recently ventured into AI through its Artificial Intelligence Platform (AIP). AIP bolsters its existing platforms by supporting large language models and generative AI, aiming to make AI not just an experimental technology but a practical tool for real-world business applications.
Financially, Palantir has shown robust growth with its revenue increasing by 27% to $678 million in the second quarter, and non-GAAP earnings per share jumping 80% to $0.09. This performance is reflective of a growing demand for functional and impactful AI solutions in real-world scenarios—a demand that Palantir is well-positioned to meet with its AIP.
Income projection - Palantir
Financial Ratios - Palantir
However, the valuation presents a challenge. Despite the technological acclaim and strong growth metrics, Palantir's stock trades at a steep 115 times adjusted earnings. This valuation is based on an expected annual earnings growth rate of 21% through 2026, which, while healthy, does not fully justify the current price multiples according to some analysts. Indeed, this has prompted entities like Ark Invest to reduce their holdings following Palantir's inclusion in the S&P 500, signalling concerns about the stock's sustainability at these levels.
Amazon
On the other hand, Amazon's involvement in AI is backed by its massive scale in e-commerce, digital advertising, and cloud computing. Amazon Web Services (AWS) is a leader in the cloud infrastructure market, holding 32% of the market share. AWS supports AI development through platforms like SageMaker and Bedrock, which are critical given that chief information officers have identified AWS as a primary benefactor of generative AI growth.
Income Projection - Amazon
Financial Ratios - Amazon
Amazon's second quarter showed a 10% increase in revenue to $148 billion, although it fell slightly short of expectations due to weaker advertising revenue. However, its GAAP earnings significantly outperformed expectations, demonstrating Amazon's ability to translate its broad revenue base into profitable growth. Looking ahead, Amazon is expected to see an annual earnings growth of 25% through 2026, which makes its current valuation of 46 times earnings appear more reasonable than Palantir.
Moreover, Amazon's strategic adjustments to its fulfilment network and the growth of high-margin segments like cloud and advertising suggest the potential for enhanced profitability, particularly as market conditions improve post-inflation.
Conclusion
Between Palantir and Amazon, the investment outlook differs significantly. Palantir offers cutting-edge AI technology with its new AIP, but its high valuation and the recent actions by significant investors like Ark Invest raise questions about the immediacy of its stock's growth potential. Meanwhile, Amazon presents a more balanced growth outlook, supported by strong fundamentals, a diversified business model, and a more conservative valuation that aligns with its growth prospects.
For investors, Amazon might represent a safer, yet still promising, AI investment avenue with considerable upside and less volatility compared to Palantir. On the other hand, Palantir could appeal to those with higher risk tolerance and a focus on specialized AI applications, provided they are cautious about its valuation peaks.
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