AI’s Impact on Palantir and Snowflake
Palantir and Snowflake are benefiting significantly from the growing global investment in artificial intelligence (AI). Palantir has reported a swift rise in the use of its AI Platform (AIP) among both government and commercial clients. Meanwhile, Snowflake’s strong AI features appear to be a crucial factor in widening its customer base.
Artificial intelligence has undeniably become a defining trend of the last decade, reshaping businesses around the world. Research firms like Gartner predict that global spending on AI will hit about $1.5 trillion by 2025. Given this, many companies see potential in the AI sector, though not every player will emerge successful in the long run. Typically, firms with established technologies and a loyal customer base are better positioned to achieve sustained sales growth and profitability.
Palantir Technologies (NASDAQ:PLTR) and Snowflake (NYSE:SNOW) stand out as two companies that could make disciplined investors considerable returns over time.
Palantir has transitioned from a data analytics organization to a comprehensive AI platform. Its software is utilized in crucial operations by various clients. In the second quarter, the company’s revenue surged by 48% year-over-year, surpassing the $1 billion mark. Notably, the U.S. remains its largest market, witnessing a 68% sales increase to $733 million, and it recorded a remarkable contract value of $2.27 billion—a staggering rise of 140% compared to the previous year.
A large share of this growth can be attributed to the increasing adoption of AIP, which incorporates advanced large language models to solve complex, real-time business problems. Palantir is also focused on aiding clients in scaling their operations through automation. New offerings like the AI Forward Deployed Engineer and AI Workbench are designed to streamline application development and workflows.
Moreover, the introduction of Ontology-as-a-Code capabilities allows customers to leverage ontologies within their chosen development environments. Currently, Palantir stock is trading at a very high valuation—over 123 times sales. While this may raise some eyebrows, it reflects a solid confidence from Wall Street in the company’s growth potential.
Looking ahead, analysts predict Palantir’s revenue could increase at an annualized rate of 39.9%, rising from $2.86 billion in FY2024 to $11 billion by FY2028. Similarly, adjusted earnings per share are set to grow by about 40.7%. Hence, it seems reasonable to believe that valuations will likely keep ascending for some time.
On the other hand, Snowflake is evolving from a cloud data warehouse into an AI-centric data cloud tailored for enterprises. In its second fiscal quarter, product revenue climbed by 32% year-over-year, reaching $1.09 billion, with a non-GAAP operating margin of 11%. The company reported $6.9 billion in remaining performance obligations, reflecting a 33% increase from the same period the previous year. A vast number of committed clients, along with major deals in the works, hint at sustained profitability.
Snowflake’s impressive 125% net revenue retention rate also showcases its ability to upsell and cross-sell successfully. AI has emerged as a vital growth engine, contributing to nearly half of new client acquisitions during the last quarter. Notably, over 6,100 accounts rely on Snowflake’s AI capabilities weekly, engaging in various activities like data migration and analytics.
With Snowflake Intelligence, businesses can interact seamlessly with their data to develop intelligent agents. The recent Cortex AI SQL feature lets users apply AI models directly in SQL databases, eliminating data transfer between applications.
Add to this the launch of Gen2 data warehouse, which doubles data extraction performance without raising costs, and you see why Snowflake is accelerating customer acquisition. The company added 533 new customers in its latest quarter, including 15 from the Global 2000. Although its stock is at 19.4 times sales—a steep valuation for a company not yet profitable—the rapid adoption of its AI features and expanding customer base make it seem justified.
Despite its rising valuation, investing in Snowflake could still yield impressive returns.
Before considering an investment in Palantir Technologies, it’s wise to note that some analysts haven’t placed it among the top picks right now. There are stocks identified by various investment teams that are anticipated to outperform, arguably providing better return opportunities over the coming years.
