If there is one major trend that's revolutionizing the world today, it's artificial intelligence (AI). With its ability to analyze vast amounts of data and help its users make intelligent decisions, AI is disrupting almost every industry, from finance to education, healthcare, energy, and more.
This revolution will lead to winners and losers as the former openly embrace these new technologies while the latter shun them. Palantir (NYSE: PLTR) and Meta Platforms (NASDAQ: META) . are both well-positioned to be among the winners, but which would be a better bet for your portfolio now?
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Palantir
Founded in 2003, Palantir's original core business was helping the U.S. government analyze mountains of complex and unstructured data it possessed across a host of databases. With the help of Palantir's early AI software, intelligence agencies gained insights that helped them make critical decisions in their counter-terrorism operations.
That initial success helped the company expand its clientele to other government agencies domestically and abroad. In recent years, the tech company has leveraged the experience it gained in the public sector to help private corporations with complex tasks like fraud detection, risk management, etc. All these problems require robust software platforms that can consume vast amounts of internal and external data, analyze it, and provide useful insights to clients.
Palantir's software platforms -- Gotham for government agencies, Foundry for private-sector clients -- can handle vast amounts of data. For example, clients can leverage their existing data infrastructures when implementing Palantir's Artificial Intelligence Platform (AIP) solutions such as machine learning, generative AI, etc.
Potential clients can also leverage Palantir's AIP "boot camps" to experiment with its software. These events allow organizations to rapidly see how the company's services could be applied directly to addressing one of their specific needs. Giving potential clients the chance to experience how its AI can help them in their existing operations puts Palantir ahead of most of its competitors, especially those still in earlier stages of developing their software solutions.
Palantir's early-mover advantage positions it well to capture a share of the vast and growing AI market. According to forecasts from Statista , the AI market is set to reach $184 billion in 2024 and could grow to $827 billion in 2030. Palantir's revenue was $2.2 billion in 2023, so its prospects for benefiting from that market growth look bright.
Meta Platforms
Like Palantir, Meta Platforms has the potential to be a massive beneficiary of the AI boom, though its opportunities are vastly different. Meta is predominantly a social media networking and metaverse company, so it's employing AI technologies to improve its product offerings for both users and advertisers.
For example, Meta is integrating AI across its apps, including Facebook, Instagram, WhatsApp, and Messenger, to enhance its personalized content feeds and recommendation systems. Better content recommendation systems help increase user engagement and promote user loyalty. Another example is to use AI to automatically translate content languages, giving users easier access to foreign content.
Similarly, Meta employs AI to help advertisers get better returns on their marketing spending. For example, AI can help advertisers analyze massive amounts of data, gain insights on trends, and offer recommendations on strategy. While Meta doesn't charge its advertisers for the use of these AI tools, it benefits indirectly from advertisers' success -- since advertisers whose Meta campaigns are successful will be more likely to spend more on its platforms.
This is another significant difference from Palantir since Palantir generates revenue directly from clients using its AI platforms, while at Meta, AI's contributions are indirect. As such, it will be difficult for investors to ascertain how AI is impacting Meta's overall financial performance.
On the positive end, Meta is a well-established tech giant with solid earnings and a strong balance sheet, making it a potentially less risky investment than the smaller Palantir.
A quick word on valuation
Neither of these companies appears to be cheap, especially when measured using traditional metrics like the price-to-sales (P/S) and price-to-earnings (P/E) ratios. Palantir has a P/S multiple of 29 and a P/E of 243, while Meta's P/S multiple is 9 and its P/E is 29.
Comparatively, Palantir's valuations are significantly higher than Meta's, indicating that investors have higher growth expectations for the former. This makes sense since Palantir has a market capitalization of $64 billion and revenue of $2.2 billion, while Meta is a $1.28 trillion giant with a top line of $134.9 billion. The smaller company would appear to have far more runway for long-term expansion.
Still, it's worth reiterating that these companies have very different business models, so one can't make an apples-to-apples comparison.
Which is the better AI stock to buy now?
The quick answer is that there's no obvious winner. Meta Platforms is an established and wildly profitable tech giant that's actively embracing AI technologies to strengthen its business, but it does not directly make money from those AI tools. On the other hand, Palantir provides investors with direct exposure to AI since it makes money from its AI software and tools. Yet the stock is much more expensive.
Investors should, therefore, focus on the company they are more comfortable with -- and usually, that means the one whose business model is within their circle of competence.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Palantir Technologies. The Motley Fool has a disclosure policy .
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