Both technology companies have customers hungry for their AI solutions.
Artificial intelligence (AI) has great potential to transform industries. Some liken AI to the most transformative technology since the Internet.
Many companies are looking to capitalize on long-term trends in AI. The two companies are Palantir Technologies (PLTR 2.98%) and C3.ai (AI 1.12%). The former uses AI to derive insights from data, while the latter provides turnkey and custom AI software to organizations.
The AI market is expected to rapidly expand from a projected $184 billion this year to $827 billion by 2030. Given this growth, is Palantir or C3.ai a better AI investment in the long run? Here we’ll take a look at each to reach our conclusions.
For Palantir
Palantir has been helping the U.S. government analyze data since 2003, and just released its Artificial Intelligence Platform (AIP) in 2023. With its launch, AIP helped accelerate the expansion of Palantir’s non-governmental business.
In the second quarter, Palantir’s commercial sales increased 33% year-over-year to $307 million. This brought the company’s second-quarter revenue to $678 million, a 27% year-over-year increase.
Not only is Palantir’s revenue growing, but its financial health is also excellent. Net income ended the second quarter at $135.6 million, up from $27.9 million in 2023. Additionally, adjusted free cash flow (FCF) for the quarter was $149 million, up from $96 million a year ago.
AIP has been successful in attracting commercial customers because the platform allows companies to move from AI concept to actual implementation in just a few days. This ability is no small feat, and according to Shyam Sankar, Palantir’s CTO, “this is where our entire opportunity in the market lies.”
As a follow-up to the success of AIP, Palantir has introduced a new product built on AIP called Warp Speed. The solution aims to address manufacturing bottlenecks by leveraging AI to improve supply chains and organizational manufacturing processes.
If Palantir can successfully tap into this huge market, where the U.S. gross domestic product (GDP) reached nearly $3 trillion last year, it could fundamentally change its fortunes.
Overview of C3.ai
C3.ai started as an energy management company in 2009 and transitioned to AI software in 2019. Its energy industry roots enabled the company to form a joint venture with energy giant Baker Hughes to bring AI technology to the oil and gas sector. This has enabled C3.ai to land customers such as Shell and ExxonMobil.
C3.ai’s software platform can address a variety of situations where AI can help your business, including fraud detection in banks. The company generated 84% of its revenue from subscriptions in the first quarter of fiscal 2025, which ended July 31. The rest comes from services such as training and customer support.
The company’s revenue has grown rapidly due to the demand for AI. Fiscal first quarter sales reached $87.2 million, an increase of 21% year over year. As a result, C3.ai achieved double-digit revenue growth in fiscal year 2024, with sales increasing 16% year over year to $310.6 million.
The company also reported first-quarter FCF of $7.1 million, a significant improvement from the prior year’s negative FCF of $8.9 million. However, C3.ai is not profitable. First quarter net losses totaled $62.8 million.
Furthermore, the partnership between the company and Baker Hughes is set to end in April 2025. This is an important relationship for C3.ai, with some estimates suggesting that Baker Hughes accounts for more than a third of C3.ai’s revenue.
Choosing between C3.ai and Palantir?
Choosing between Palantir and C3.ai as a better investment is not an easy one. Both companies have strong revenue growth, but C3.ai’s lack of profitability makes Palantir seem like a better AI business to invest in. But Palantir’s success has sent the stock higher, with shares soaring more than 150% in the past 12 months.
At the moment, when comparing the company’s price to sales (P/S) to C3.ai, it appears to be quite expensive. The P/S ratio shows how much an investor would have to pay per share to receive $1 worth of return.
Data by YCharts. PS ratio = price to sales ratio.
Wall Street agrees. The consensus among Wall Street analysts is a “hold” rating on Palantir stock, with a median price target of $28. Wall Street’s price target suggests that Palantir stock is overvalued, given that the stock is trading at around $43 as of this writing.
That said, C3.ai is definitely not a buy. Like Palantir, the consensus among Wall Street analysts is a “hold” rating on C3.ai stock, with a median price target of $22.
Add to this the uncertainty surrounding C3.ai’s partnership renewal with Baker Hughes. Therefore, any decision regarding the purchase of C3.ai shares should be postponed until this partnership situation is resolved.
If not for Palantir’s extremely high valuation, it would be a better AI investment than C3.ai given its strong financials, AIP success and future prospects with Warp Speed. But for now, it’s best to wait for Palantir’s stock price to fall before deciding to buy.
