If asked to name a few artificial intelligence (AI) companies, most investors will likely suggest such big tech companies as Amazon , Alphabet , and Microsoft . While there's nothing wrong with these companies -- they are leaders in this AI revolution -- there are other smaller but equally well-positioned companies that could become future giants.
This article aims to share two lesser-known companies that have long positioned their business to benefit from the transition to AI.
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Palantir
Palantir (NYSE: PLTR) may not be a household name like Amazon or Google, but that doesn't mean the company is an insignificant player in the tech industry. Conversely, it's a critical player in the enterprise software sector, serving major corporations in both the public and private sectors -- governments, major banks, oil companies, etc.
Palantir aims to help its clients gain insights and clarity through data, as its namesake suggests. It began by supporting the U.S. Department of Defense in counterterrorism activities by providing it with insights gained from its software platform, Gotham. The company later expanded into other public agencies locally and overseas and, in recent years, accelerated its investment in the private sector.
With more than two decades of experience providing software tools to analyze large and complex data sets, Palantir is favorably positioned to leverage its know-how to offer AI solutions to existing and new customers. For example, existing clients can easily leverage their past investment in data infrastructure to run Palantir's latest AI software tools, such as machine learning, generative AI , etc.
Besides, Palantir's solid reputation -- gained over the years from serving massive corporations globally -- gives it a huge advantage in recruiting new clients. For example, a chief technology officer will find it easier to convince the CEO and the board to implement Palantir's software solutions than other AI start-ups' solutions.
Palantir's solid financial performance over the last few years reflects its strong market position. In the previous five years, revenue has tripled from $595 million in 2018 to $2.2 billion in 2023, a compound annual growth rate (CAGR) of 30%. The bottom line also improved from a negative $580 million to a positive $210 million in that period.
Palantir demonstrates a rare combination of high growth and profitability. The one big downside to the stock is its sky-high valuation -- its price-to-earnings (P/E) ratio is 239 as of this writing. Thus, except for a few risk-takers, conservative investors should keep the stock on their radar for now.
C3.ai
C3.ai (NYSE: AI) is an enterprise AI software company that went public in 2020. While it might be a young public company, it has been operating in the market for nearly 15 years.
Established in 2009 by Thomas Siebel -- the same person who founded and sold CRM company Seibel Systems to Oracle -- C3.ai provides AI solutions under the software-as-a-service (SaaS) business model. The company mainly provides services under C3 AI Suite and C3 AI Applications.
C3 AI Suite is an AI platform that helps clients design, build, and deploy AI applications in their business. Using this platform, clients can build tailored applications that help them meet their daily operational needs. On the other hand, C3 AI Applications are ready-made applications that clients can install and use immediately. Usually, these apps have been developed earlier for another company within the same industry.
Like Palantir, C3.ai provides AI-related software solutions to help big corporations leverage AI technologies to improve their operations. And since C3.ai has been heavily investing in the AI industry, it has, over the years, secured major contracts from such clients the U.S. Air Force, Shell , and AstraZeneca, to mention a few.
Again, like Palantir, C3.ai's early-mover advantage translates into robust growth. In the last five years, revenue more than tripled from $92 million in the fiscal year ending April 30, 2019, to $311 million in the fiscal year ending April 30, 2024. However, unlike its larger peers, C3.ai remains in the red as it continues its heavy investments in research and development and sales and marketing.
Investors should also note that while C3.ai stock's valuation is not as expensive as Palantir's, it is not cheap. As of this writing, it trades at a price-to-sales (P/S) ratio of 11.5, while Palantir's P/S ratio stands at 28.7. However, compared to well-established tech giants like Alphabet, with a P/S ratio of 7.7, the young company's stock appears pricey.
In short, while C3.ai's prospects look promising, investors should note that the company remains unprofitable and the stock is not in bargain territory. Thus, it's probably best that investors track the stock for some time before making their next move.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, 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 Alphabet, Amazon, Microsoft, Oracle, and Palantir Technologies. The Motley Fool recommends AstraZeneca Plc and C3.ai and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy .
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