An estimated $1 trillion will be invested into expanding artificial intelligence (AI) services over the next several
years in everything from graphics processors to software. Many tech companies will benefit from this massive
investment, but which will be the best long-term AI stocks to own?
Let’s take a peek at two major AI players right now — Palantir Technologies (NYSE: PLTR) and Microsoft (NASDAQ: MSFT)
— to see how each one is excelling in their respective domains and which one could emerge as the superior AI
stock in the years to come.
Image source: Getty Images.
The Ascendancy of Palantir
Palantir has dedicated years to crafting cutting-edge AI systems utilized by government agencies to analyze vast
amounts of data and make informed decisions. While a significant portion of its revenue still arises from
government contracts (just over half), the firm has been broadening its AI reach into the commercial sphere in
recent years.
Commercial segment revenue surged by 33% in the second quarter (ending June 30) and represented about 45% of
Palantir’s total sales. Why does the expansion of commercial sales demonstrate promise for Palantir? It showcases
that the company’s AI technology is formidable and adaptable in a rapidly expanding AI market.
Not all companies can lay claim to such feats. Reflect on what chief technology officer Shyam Sankar mentioned on
the company’s recent earnings call regarding its edge over AI competitors: “[W]here the market is completely
bottlenecked is on that transition from prototyping to production. And that happens to be the place that we are
most differentiated.”
Indeed, while others are playing catch-up, Palantir is reaping the rewards of years of AI investments. Management
anticipates U.S. commercial sales to leap by 47% in 2024 to $672 million. Executive leadership also raised its
full-year sales guidance to a range of $2.74 billion to $2.75 billion, marking an increase of approximately 23%
from last year.
The Fortitude of Microsoft
Microsoft may not currently hold the title for the flashiest AI name, but it undeniably stands as one of the most
significant players. The company has already poured an estimated $13 billion into ChatGPT creator OpenAI, and its
early investment in this influential AI startup is yielding dividends.
Microsoft swiftly leveraged its investment by integrating the fundamental ChatGPT tech into its renowned suite of
Microsoft 365 software products, its GitHub developer platform, and Azure cloud computing services.
The most significant AI opportunity arising from this is likely tied to Azure. Microsoft holds the second largest
market share in cloud computing services (currently at 25%) after Amazon, and its new AI tools are broadening its
influence. Management highlighted on the fourth-quarter earnings call that Azure now caters to 60,000 AI
customers, a rise of approximately 60% from the previous year.
Why is this noteworthy? The cloud computing market’s sales are expected to skyrocket to around $2 trillion by 2030,
as per Goldman Sachs. AI is already driving a portion of this growth, and Microsoft stands to gain as more
companies turn to its AI cloud services to enhance their AI offerings.
Verdict: Microsoft Takes the AI Crown
While Palantir brims with opportunities in the AI realm, two reasons point to Microsoft as the superior stock in
the AI domain. First, its shares are significantly more reasonably priced than Palantir’s.
Microsoft’s shares boast a forward price-to-earnings ratio (P/E) of 32 currently. While not exactly
inexpensive, it’s markedly less costly than Palantir’s forward P/E of 87.
Secondly, Microsoft’s substantial investment in OpenAI and its stronghold in the cloud computing sector position the
company at the vanguard of cutting-edge AI technologies with a burgeoning market for implementation.
With a more attractive price tag and a vast AI cloud market to capitalize on, Microsoft emerges as the prime
long-term AI investment choice over Palantir.
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