One of the biggest themes driving the market's sharp recovery last year was artificial intelligence (AI). Applications such as ChatGPT have taken the world by storm; microsoft, alphabet, Amazonand Nvidia They are spending billions of dollars to gain an edge in AI.
Other software players moving into this space are often ignored in relation to the larger software players. These two companies in the data analytics space are taking very different approaches to AI.Let's see how snowflake (snow -3.59%) and Palantir Technologies (PLTR -1.59%) Assess which companies are competing in the AI ​​space and look like winners.
Palantir is bringing the heat…
Palantir has long been considered a government contractor because of its close ties to the U.S. military and Western allies. Although the company has developed a number of software products, many Wall Street experts remained skeptical of Palantir's technological capabilities. In fact, a short report published nine months earlier by The Bear Cave went so far as to label Palantir an “AI fraudster.”
But in 2023, Palantir caught the bears off guard thanks to the success of its fourth big product, the Palantir Artificial Intelligence Platform (AIP). Since the commercial launch of his AIP last April, Palantir has run nearly 850 pilots demonstrating his new software platform. In comparison, the company conducted 92 pilot operations in 2022.
Even more surprising is the rate at which these demos convert into paying customers. Last year, Palantir grew its customer count by 35% year over year. But the real winner was customer growth from non-governmental businesses, which grew by 44%.
In addition to accelerating sales, Palantir has demonstrated disciplined financial management across the board. The company has reported earnings under generally accepted accounting principles (GAAP) for five consecutive quarters, and its balance sheet ended 2023 with $3.7 billion in cash and equivalents and no debt.
I see the emergence of AIP as the first step in changing investor perception of Palantir from a government contractor to a true Software-as-a-Service (SaaS) business.
…and the snow is melting
Snowflake has a story that is almost the opposite of Palantir's story. When Snowflake was still private, Snowflake attracted some of the world's most prominent venture capitalists. Additionally, the company's innovative data warehousing services have helped drive tremendous revenue growth over the years. Unsurprisingly, Snowflake completed the largest software initial public offering in history in his 2020, which also saw participation from Warren Buffett and others.
Nevertheless, the growth story surrounding Snowflake has begun to cool since it hit public exchanges in late 2020. The company's revenue growth has begun to slow significantly, and while this can be attributed in part to tough economic conditions, slowing sales is not the only problem.
One of the most important metrics for a SaaS business is the Net Revenue Retention Rate (NRR). NRR measures how much revenue is growing net of churn experienced by a company. If this ratio is greater than 100%, it means that your company's revenue is higher than its churn rate.
In fact, Snowflake's recent NRR of 131% is not surprising. However, what is concerning is that the company's NRR has declined for eight consecutive quarters. With revenue growth slowing and retention rates declining at the same time, it's no wonder Snowflake is still bleeding cash. His GAAP net loss for 2023 is reported to be $836 million.
Potentially most concerning is Snowflake's lack of urgency when it comes to AI. In mid-2023, the company acquired a startup called Neeva, which specializes in generative AI applications targeting cloud-based datasets. Since the acquisition, Snowflake has been fairly quiet about its AI strategy. And with the company's CEO stepping down on February 28th, it seems to me that Snowflake's future and its place in the AI ​​industry is shrouded in mystery at best. Frank Slotman will remain chairman of Snowflake's board, and Sridhar Ramaswamy, senior vice president of AI, will become CEO.
evaluation
The chart below shows the price-to-sales (P/S) ratio of several growth SaaS stocks. Based on this metric, with a P/S of approximately 28, Palantir is the most valuable company in this cohort. However, it's important to note that Palantir's valuation has expanded significantly since last month's impressive fourth-quarter earnings report. I believe the company's premium valuation is justified and am bullish on AIP's long-term potential.
On the other hand, I do not view Snowflake's recent share price decline as a buying opportunity. The company appears to be at a crossroads and is very likely to be left behind in the AI ​​revolution.
With strong revenue growth, stable profits, accelerating customer acquisition, and a concrete AI vision, I see Palantir as a clear winner compared to Snowflake. A smart strategy is to start building a position in Palantir using dollar-cost averaging or adding to an existing allocation.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool's board of directors. Adam Spatacco has held positions at Alphabet, Amazon, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, Nvidia, Palantir Technologies, and Snowflake. The Motley Fool recommends the following options: His January 2026 $395 long call on Microsoft and his January 2026 $405 short call on Microsoft. The Motley Fool has a disclosure policy.