Snowflake Vs Palantir Stock: Which Is Best?

Palantir Technologies Inc. (NYSE:PLTR) and Snowflake Inc. (NYSE:SNOW) have been on starkly different trajectories over the past few years.

Both are touted as major artificial intelligence players and yet Palantri has been on the rise while Snowflake has failed to live up to lofty expectations set at its IPO.

Now the question is which is best? Will Snowflake recover or will Palantir falter?

Palantir was founded to aid the government in counterterrorism operations. Its forte was national security threats. However, over the years, it has aggressively expanded into commercial operations, amassing 497 customers as of year-end 2023.

The expansion beyond the government sector has been richly rewarded by investors and the stock rose by over 30% before Q2 2024 had completed.

Another metric that shows it is steadfastly expanding its commercial operations is the use of its software in different industries. In 2021, Palantir reported that its software was used in more than 50 different industries worldwide, growing to more than 60 in 2022 and about 80 in 2023.

Before its public listing, the company was avidly traded privately. Somewhat surprisingly, on the first day of trading, the stock ended in red. However, since then, PLTR share price has gained a lot of investor attention, and risen by nearly 140%.

Is Palantir All Hype?

Some have speculated that the volatility in Palantir’s share price is emblematic of a company that is full of fluff but without fundamental merit. Yet the financials suggest otherwise.

In the last fiscal year, Palantir’s revenue rose on a year-over-year basis by 16.7% to reach $2.23 billion. Net income for the year was $210 million on a GAAP basis. The Q4 net income of $93 million marked the fifth straight quarter of profitability on this basis.   

The company’s margin is benefitting from the scaling of its Artificial Intelligence Platform (AIP). The fourth quarter’s adjusted gross margin stood at 84%, the highest since Q3 2022. Adjusted operating margin reached 34%, doubling from the Q3 2022 report.

For the current fiscal year, Palantir expects revenues to be in the range of $2.65 to $2.67 billion. Furthermore, as a testament to the growth of its commercial segment in the U.S., this division’s revenue is expected to be more than $640 million.

Snowflake Is a Puzzle To Figure Out

Snowflake’s topsy turvy share price is about as difficult to figure out as its share price.

This company that Warren Buffett’s Berkshire Hathaway famously bought pre-IPO is in the business of helping organizations recognize the power of data.

AI is at the core of operations and its cloud-native architecture has become large enough to support a burgeoning business. The company has 9,437 total customers as of January 2024.

Several large organizations, including 691 Forbes Global 2000 companies, depend on Snowflake. These Forbes giants contribute about 41% of its revenue.

The company’s net revenue retention rate sits highly at 131% as of January 2024. However, this figure is in decline, down from 158% in January 2023 and 178% in January 2022.

The company priced its IPO at $120 per share in 2020, and after the first day of trading, SNOW share price climbed to $253.93 per share, resulting in a whopping valuation of $70.4 billion.

This was remarkable given the macro circumstances of the time but since then the road has been rocky for shareholders with the price declining by more than 50% since inception. Its current market capitalization sits at $50.8 billion.

Is Snowflake Growing Fast Enough?

Snowflake has been steadily growing its top line thanks to its consumption-based model. This approach is in stark contrast to the more traditional subscription-based one.

Product revenues are an important gauge of performance and have increased from $1.14 billion in FY 2022 that ended January 31, 2022 to $1.94 billion in FY 2023 and upwards to $2.67 billion in FY 2024.

On the downside, the company’s losses have been increasing on a GAAP basis. Net losses have steadily increased from $679.95 million in FY 2022 to $836.10 million in FY 2024. But, it reported non-GAAP net income of $351.69 million in fiscal 2024, rising by 291%.

For FY 2025, management guided a 22% increase in product revenue to $3.25 billion. The same for the fiscal first quarter is forecast to grow 26 to 27%. Moreover, the company intends to hire 1,000+ employees this year at a time when many peers are cutting their workforces.

Palantir Vs Snowflake Stock?

Palantir appears to be the better stock to buy because it’s already reached profitability on a GAAP basis whereas Snowflake continues to post losses.

Palantir AI is also increasing margins, which is a positive sign against a market backdrop that is buzzing with artificial intelligence enthusiasm.  

In terms of forward non-GAAP earnings, Palantir’s 67.08x is way higher than its industry peers. Analysts expect a correction of nearly 9% to hit the average target price of $20.02 per share.

Remarkably, Snowflake is trading 159.44x forward non-GAAP earnings, about 580% higher than the sector median, despite its shares losing massively since its stock market debut.  

The company recently changed an executive. CEO Frank Slootman retired, and Sridhar Ramaswamy was appointed as the new CEO. It’s too soon to say what will this change mean.

The odds are that both stocks will offer even better opportunities down the line but Palantir continues to be the standout performer by growing its top and bottom lines. 

Still, Snowflake has pulled back quite a bit in recent months and may soon offer a more compelling reward to risk ratio for investors keen to get AI exposure on a high beta stock.

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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.