Palantir Technologies‘ (NYSE: PLTR) stock price has rallied about 50% this year as the data analytics company dazzled the bulls with its accelerating revenue growth and soaring profits. Its revenue rose 17% in 2023, and it expects 20%-21% growth in 2024 as its government business stabilizes and its U.S. commercial business accelerates. It’s also stayed profitable for six consecutive quarters, and analysts anticipate 71% earnings growth this year.
From 2023 to 2026, analysts expect Palantir to grow its revenue at a compound annual growth rate (CAGR) of 20% as its EPS increases at a CAGR of 56%. That rosy outlook, along with Palantir’s growth potential in the AI market, drove its stock higher.
But Palantir’s stock isn’t cheap right now at 21 times this year’s sales, and it could struggle to maintain those premium valuations if the macro and competitive headwinds throttle its near-term growth. So if you’re worried the stock will lose its luster again, you should check out two less valuable AI companies that might just be worth more than Palantir in three years: Super Micro Computer (NASDAQ: SMCI) and Baidu (NASDAQ: BIDU).
What do these two AI companies do?
Super Micro Computer, more commonly known as Supermicro, produces high-performance, liquid-cooled servers for demanding data center tasks. It generates about half of its revenue from dedicated AI servers, and its long-term partnership with Nvidia grants it access to the chipmaker’s new data center GPUs before many of its top competitors. Bank of America expects its share of the dedicated AI server market to grow from 10% to 17% over the next three years.
Baidu owns the largest online search engine in China. It also owns a majority share of iQiyi, one of the country’s leading streaming video platforms, the Apollo software platform for autonomous vehicles, and the Baidu AI Cloud platform. It generates most of its revenue from online ads, but it’s been diversifying that core business with Managed Business Pages (which empower it to manage a client’s entire brand presence within its ecosystem) to reduce its dependence on traditional search and display ads. It’s also beefing up its mobile app with more tools and expanding its non-marketing (cloud, AI, and other) division to reduce its exposure to the macro-sensitive advertising market.
Why could these two companies become more valuable than Palantir?
Supermicro and Baidu could become more valuable than Palantir because they both look cheaper relative to their estimated sales growth over the next three years.
|
Company |
Market Cap |
Price-to-Sales Ratio (Current Year) |
Estimated Revenue CAGR (Next 3 Years) |
|---|---|---|---|
|
Palantir |
$57.6 billion |
21.3 |
20% |
|
Supermicro |
$49.6 billion |
3.3 |
58% |
|
Baidu |
$31.0 billion |
1.6 |
6% |
Data source: Yahoo Finance, Marketscreener.
If Palantir maintains its lofty price-to-sales ratio through 2026, it could be worth $80.6 billion in a bull case scenario by 2026. But if the macro or competitive headwinds unexpectedly curb its growth, its price-to-sales ratio could easily be cut in half.
If Supermicro matches analysts’ expectations and simply maintains the same price-to-sales ratio over the next three years, it could be worth about $93 billion by 2026. It should fetch an even higher valuation if it’s finally revalued as a higher-growth AI stock instead of just a legacy server maker like Dell Technologies.
Baidu’s recent growth has been throttled by competitive and macro headwinds in China, but its valuation is being severely compressed by the ongoing tensions between the U.S. and China. If those tensions ease, we might see Baidu’s stock trade at about 4 to 5 times its forward sales again — as it did about four years ago. If Baidu merely matches analysts’ estimates and trades at about 4 times sales by 2026, it would be worth $88 billion. But that’s a base case scenario: it could be worth a lot more if its new cloud and AI investments pay off and significantly boost its sales again.
But are Supermicro and Baidu better buys than Palantir?
We should take those estimates with a grain of salt, but they indicate that Palantir’s stock is more richly valued than Supermicro and Baidu. Benjamin Graham said: “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” I believe Palantir is still in the voting phase as investors pay a premium for its AI-driven features, but Supermicro and Baidu have advanced into the weighing phase — so they could both outperform Palantir over the long term.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Baidu, Bank of America, Nvidia, and Palantir Technologies. The Motley Fool recommends iQIYI. The Motley Fool has a disclosure policy.
Prediction: 2 AI Stocks That’ll Be Worth More Than Palantir 3 Years From Now was originally published by The Motley Fool
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