Palantir has soared 1,760% since the beginning of 2023.
Its valuation is very noble, which makes the stock's downside risk very high.
The two stocks traded at a more reasonable value while showing very strong revenue growth.
10 Better Stocks than Palantir Technologies›
Palantir (NASDAQ: PLTR) Rapidly rises to become one of the largest artificial intelligence (AI) companies in the world.
The company has a market cap of about $280 billion at the time of writing after it climbed 1,760% since 2023. The stock price surge was supported by improving financial performance. The company showed strong revenue growth as it expanded and improved operating leverage.
Only a few companies have a greater market value than today's AI dear. But a year from now on, investors looking at Palantir may be better off investing in one of the two smaller companies that offer better potential than Palantir. Actually, I expect the two companies to be worth more than Palantir in the current year.
Palantir's financial results over the past two years are impressive.
From 2024 to 2024, its revenue rose 50% from its 2022 level. The special advantage of U.S. business income has more than doubled. Management expects revenue to climb another 34% this year. Drive growth is its AI platform, which makes it easy for anyone to use Palantir’s software to gain insights from the company’s different datasets.
With strong revenue growth, Palantir has remained stable while sales growth, showing strong operating leverage. Adjusted operating margin increased from 24% in the first quarter of 2023 to 44% in the previous quarter. As a result, Palantir made a profit last year with the accepted accounting principles (GAAP) profit and joined the S&P 500.
But investors bid far faster than their financial situation. The stock is now trading more than 70 times the corporate value of its expected 2025 sales. Even with strong profit margins, the stock has a forward price-to-earnings ratio (PE) ratio of more than 200. To say that Palantir's stock is expensive may be an understatement. Therefore, any mistakes, disappointing revenue reports or news that negatively impact the company on the stock may lower the stock.
The two companies look much better and can surpass Palantir's market capitalization in a year.
ServiceNow (NYSE: Now) Historically, developed through its land and disclosure strategies. After introducing first-class IT service management solutions, it expanded to IT operations management. From there, it began providing software for HR, customer service, finance and operations. As a result, it sees very strong customer retention and net retention. It consistently sees 98% of customers renew contracts.
In 2023, the company introduced new generative AI capabilities into its software suite, and so far, customers have been absorbing strongly. Management said it already has over $250 million in annual contract value, associated with its current Assis AIS product. This figure is expected to reach $1 billion by the end of next year. With its current remaining performance obligation of $10.3 billion, AI is an important growth driver for the business. More importantly, it provides customers with another reason to subscribe and expand their business through ServiceNow.
The company sees a lot of room for growth. It expects subscription revenue to grow from $10.6 billion last year to $15 billion next year. Meanwhile, the adjusted operating margin will increase by 100 basis points per year to 32.5% over the next two years. Moreover, because its addressable market is both large and growing, it also has great long-term growth potential. Two years ago, it estimated the potential of 200 commodity customers was $17 billion. Today, with the increase in new services, it believes it exceeds $30 billion.
Although ServiceNow's growth is not as fast as Palantir, it will still grow nearly 20% per year and demonstrates the operating margins of the software company you expect. The huge backlog of its contracts and the ability to retain revenue while attracting new customers should provide long-term revenue growth. Although the stock has an enterprise value of about 15 times the enterprise value of managed sales, its transactions are much lower than Palantir's multiple sales.
It is not unreasonable to expect ServiceNow to maintain its valuation from now on. With management's subscription revenue exceeding $15 billion and about $500 million in other revenues, the company could be worth $240 billion by this time next year.
Uber (NYSE: Uber) Already seen concerns about how self-driving cars (AVs) can affect their business, overwhelming their inventory. The company proves that it is an ideal partner for self-driving cars. It has announced partnerships with several AV companies to deploy fleets in specific cities around the world. It recently launched a 100-car Waymo vehicle in Austin. Management said these vehicles completed 99% of riding on any day.
In the long run, AV may be the driving force behind wider adoption and use cases by driving lower costs. Uber is a consolidator of ride-sharing needs with a network of more than 170 million riders worldwide, making it a leader in building strategic partnerships with more AV companies. This is a huge long-term advantage.
However, in the short term, Uber has seen very strong leverage in its operations. Adjusted interest, tax, depreciation and amortization (EBITDA) margin expanded to 16.2% from 13.6% a year ago. Free cash flow climbed to $2.25 billion, a year-on-year increase of 66%. Both should be disciplined as the business expands, reducing the cost of acquisition for customers and increasing the value of their customers’ lifespan. Management touted customer retention rates in Q1 globally or at its highest level.
Over the next two years, management will have adjusted EBITDA close to $10 billion due to steady revenue growth and operating leverage. Unlike high-priced software stocks, Uber's corporate value is only 2025 sales estimates. With lower margins and slower revenue growth, Uber deserves a lower multiple, but the current valuation looks very attractive. The company will earn nearly 30% annually, while the company will earn about 29. With some valuations expanding, the stock will be worth about $225 billion by this time next year.
If Palantir's price drops, then many Wall Street analysts expect ServiceNow and Uber will eventually be worth more than the AI stocks that move fast in a year.
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Adam Levy has no position in any of the stocks mentioned. Motley Fool has a position and recommends Palantir Technologies, ServiceNow and Uber Technologies. Motley Fool has a disclosure policy.
Forecast: 2 unstoppable growth stocks that are worth more than 1 year than Palantir 1 year, originally published by Motley Fool