Missed Out on Palantir Technologies? Buy C3.ai Instead.

Investors bought Palantir Technologies (NYSE: PLTR) stock hand over fist in 2024 thanks to the software specialist's growing credibility in the artificial intelligence (AI) space, which explains why its shares are up 53% so far this year as of this writing.

Though Palantir stock has seen some volatility of late thanks to the broader sell-off in tech stocks, its results for the second quarter of 2024 (which were released on Aug. 5) have helped it regain its spark .

Palantir not only delivered better-than-expected results, but it is forecasting a nice acceleration in its revenue growth and raised its full-year guidance. Its revenue increased 27% year-over-year in Q2 to $678 million, which was an improvement over the 21% year-over-year increase in revenue in Q1. The company's updated 2024 revenue guidance of $2.75 billion indicates that its top line could increase 23.5% this year.

However, it cannot be denied that Palantir commands a premium valuation. The stock currently boasts a price-to-sales ratio of 25. That's way higher than the U.S. Technology Sector's sales multiple of 7.3.

Of course, Palantir may eventually be able to justify its valuation in the long run thanks to its AI-fueled revenue pipeline, which is leading to an acceleration in growth. However, investors who have missed out on Palantir's robust rally this year and are looking for a cheaper alternative to capitalize on the growing demand for AI software across both commercial and federal customers should take a closer look at C3.ai (NYSE: AI) .

Let's look at the reasons why C3.ai looks like a solid AI stock to buy right now.

C3.ai is significantly cheaper than Palantir, and it is recording impressive growth

C3.ai stock has retreated 18% this year. That may seem a tad surprising as the company's recent quarterly results indicate that its pace of growth is picking up. But the good part is that C3.ai's underperformance on the market means that it can be bought at 9 times sales right now, which makes it way cheaper than Palantir.

What makes C3.ai stock even more attractive is that it is almost matching Palantir's growth.

PLTR Revenue (Quarterly) data by YCharts

C3.ai's revenue in the fourth quarter of fiscal 2024 (which ended on April 30) increased 20% year over year to $87 million. There is no doubt that C3.ai has a much smaller revenue base than Palantir, but the good part is that the acceleration in its growth is here to stay. The company ended fiscal 2024 with a 16% increase in revenue to $311 million, up significantly from just a 5% increase in revenue in fiscal 2023.

C3.ai's fiscal 2025 revenue guidance of $370 million to $395 million suggests that its top line could jump 23% this year at the midpoint, which is identical to the growth that Palantir is forecasting this year. All this indicates that C3.ai looks like a nice alternative to Palantir as it is not just cheaper, but its growth prospects are getting better as well.

C3.ai's revenue pipeline is getting better

The previous fiscal year was a terrific one for C3.ai as the company witnessed a 52% jump in the number of agreements it struck during the year to 191. At the same time, the company ended the year with 123 pilot projects in progress, which suggests that it could continue to land more agreements with new customers in the new fiscal year.

Another point worth noting here is that half of the bookings that C3.ai received in the last reported quarter for its enterprise AI software offerings were from the federal and aerospace sectors. Its federal revenue grew more than 100% in fiscal 2024. Palantir has usually been the go-to supplier of AI software platforms for government agencies, but it looks like C3.ai is making its presence felt in this area.

CEO Tom Siebel pointed out on the latest earnings conference call :

Last year, we closed 65 agreements with federal agencies and made inroads into 10 new federal organizations. In Q4, we entered into 13 new and expanded agreements with the U.S. Air Force, the U.S. Navy, the U.S. Intelligence Community, the Defense Counterintelligence and Security Agency, the Chief Digital and Artificial Intelligence Office, the Thales Group, and the U.S. Marine Corps.

Gartner estimates that the AI software market could be worth an impressive $135 billion in 2025 as more companies and governments pour money into this space. As C3.ai's solutions seem to be gaining traction with both government and commercial customers spanning industries such as oil and gas, manufacturing, energy, and others, the company's growth could accelerate in the long run.

This could lead to a rally in shares of C3.ai in the future, which is why investors looking for a cheaper alternative to Palantir should consider buying the former before it goes on a bull run and becomes expensive.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool recommends C3.ai and Gartner. The Motley Fool has a disclosure policy .