New technology brings new opportunities – and new challenges. The entrepreneurs and innovators at companies like Snowflake and Palantir are meeting those challenges head-on, and they are achieving dramatic success. Along the way, they have attracted the attention of important investors.
The recently famous Cathie Wood, who is focused on disruptive innovation, owns 5.6 million shares of Palantir in her Ark Invest family of funds.
For two of her funds, ARK Innovation (ARKK) and ARK Next Generation Internet (ARKW), Palantir stock makes up more than two percent of total holdings. Is either of these stocks right for average investors? Are both a smart buy? If so, the question is, Snowflake stock vs Palantir stock – which is best?
Snowflake Lets Businesses Analyze Data Simply
As digital technology made data collection easier, companies of all sizes found themselves in possession of massive amounts of information about customers, workflow, sales trends, and just about everything else.
However, simply having all of this detail isn’t useful unless it can be organized and properly analyzed. That means businesses need the ability to do two things – first, store the information, and second, leverage powerful computing processes to analyze it.
Before Snowflake, businesses used a variety of third-party platforms and applications to organize and analyze data. That gets expensive because pricing plans are typically assigned based on the largest data set to be analyzed. In addition, many businesses ran into issues because their assortment of applications couldn’t “talk” to each other.
Snowflake makes the entire process of storing and analyzing data simpler and more affordable. It separates the storage of data from the computing work, so businesses only pay for what they need. Better still, Snowflake makes it possible for businesses to use a variety of platforms without worrying about moving data from one to the next.
Thus far, Snowflake has been very successful in bringing new clients on board, and it is making a special effort to penetrate members of the Fortune 500. So, is Snowflake a buy, or do the risks outweigh the benefits?
Snowflake Valuation Is Lofty
The biggest issue for those interested in buying shares of Snowflake is the price, or more specifically the valuation.
Tech stocks tend to have high valuations, but Snowflake’s early success and instant notoriety due to Warren Buffett’s interest in the company pushed share prices beyond many analysts’ comfort level. Of 30 analysts polled, 15 rated Snowflake stock as a hold, 13 said buy, one said Snowflake stock will outperform, and one said it will underperform.
In other words, a small majority believe that Snowflake’s future growth is already well-represented in current pricing, leaving very little room for additional returns. If accurate, that’s bad news for those that buy in today. But is it accurate?
Snowflake YoY Growth Is 103%
The group of analysts who say Snowflake stock is a buy is nearly the size of the “hold” faction, and they have good reason to be optimistic. For the period ending June 30, 2021, product revenues reached $255 million. That’s year-over-year growth of 103 percent.
Furthermore, Snowflake’s leadership team indicated that they expect revenues for the next quarter to total between $280 million and $285 million – a year-over-year increase of 89 percent to 92 percent.
Full-year guidance also supports the “buy” group. Revenues are projected between $1.06 billion and $1.07 billion, which represents year-over-year growth of 91 percent to 93 percent.
Those projections are supported by a comprehensive strategy to deepen existing client relationships, expand into new geographical markets, and rigorously pursue the world’s largest organizations for its client list.
Based on Snowflake’s history of success, plenty of market experts are confident Snowflake will achieve its goals – and then some.
Palantir Data Analysis Is More Accurate
Palantir (PLTR) is best known for its work with government agencies, including federal law enforcement, the US military, the Centers for Disease Control and Prevention, the National Institutes of Health, the National Center for Missing and Exploited Children, and the United Nations World Food Programme.
At its core, Palantir analyzes data, but the platform offers analysis that is far more accurate, in-depth, and secure than traditional data analysis software.
The company is focused on refining data analysis with the help of artificial intelligence to produce answers for complex questions – answers that were previously unattainable with the available data analysis methods.
Over the past year, Palantir software has been instrumental in tracing COVID-19 infections, predicting outbreaks based on existing patterns, and tracking medical supplies – particularly during the early days of vaccine distribution.
These use cases, in addition to counterterrorism, intelligence gathering, and other military applications, are currently driving most of Palantir’s growth. In addition, the company is focused on expanding its commercial client list, particularly in the manufacturing, energy, and healthcare sectors.
With all of that in mind, it appears that Palantir is poised for strong growth. Does that mean Palantir stock is a buy?
Palantir Revenues Skewed Toward Government
Analysts suggest that Palantir faces three major obstacles, all of which present a substantial risk to investors.
First, Palantir has strong relationships with government agencies, but growth will stagnate if it cannot expand on the commercial side. That could be challenging because there is heavy competition for those clients. Companies like Salesforce (CRM) and Alteryx (AYX) offer data analysis driven by artificial intelligence, and those companies aren’t surrounded by controversy.
Controversy is Palantir’s second major obstacle. One of the company’s co-founders regularly speaks out on polarizing political issues, which could be problematic when it comes to signing on new clients. In addition, Palantir has been involved in government projects that sparked national debate. Many businesses will be hesitant to have an association with Palantir as a result.
Finally, Palantir stock may be too costly. It is up nearly 180 percent since it began trading publicly at the end of September 2020. At current prices, the company will have to gain a lot of ground before new investors see returns.
Is Palantir A Buy?
Palantir’s results for the period ending June 30, 2021, generally exceeded analysts’ expectations.
Revenues came in at $375.6 million, though analysts had projected a total of $360.3 million. That was due, in part, to a 66 percent increase in revenues from government agencies and a 28 percent increase in commercial revenue. Both exceeded analysts’ expectations. The company achieved earnings per share of $0.4, which is in line with analysts’ predictions.
Looking forward, it appears Palantir will record its first profitable year – and for the next quarter, revenues are expected to be up. Palantir’s guidance has revenues at $385 million, though analysts expected the number to come in closer to $379.4 million.
The number of analysts covering Palantir is relatively low, but of those that weighed in, the majority say hold. The remaining analysts recommend selling shares, so it does not appear that Palantir stock is a buy – at least not right now.
Snowflake Stock Vs Palantir Stock: Which Is Best?
The Snowflake stock vs. Palantir stock question comes down to investors’ individual strategies and levels of risk tolerance. Both companies are disruptive innovators, both offer high-quality products, and both have the potential to grow – especially if they can expand their client base.
However, in a head-to-head comparison, the level of risk presented by Palantir isn’t right for tech investors who are uncomfortable with higher-than-average risk. Palantir might pay off long-term, but for the moment, Snowflake stock is a better buy.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.