Having almost quadrupled this year while joining the S&P500 hint, Palantir(NASDAQ:PLTR) has undoubtedly attracted a lot of attention from investors. However, given that shares are trading at a very frothy valuation and insiders are selling, the question becomes whether investors should turn their attention to other companies that are benefiting from artificial intelligence (AI)?
The biggest blow to Palantir comes not from its business, which is seeing accelerated growth as commercial and government customers begin to adopt its AI platform, but from a valuation that has exploded into the future. price-to-sales ratio (P/S) a multiple of 45.7 times analyst estimates for 2025 earnings and a staggering forward price-to-earnings (P/E) ratio of 147 times, as of this writing.
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This is a much higher valuation than SaaS companies that peaked in 2020-2021. Insiders, meanwhile, have sold shares aggressively in recent months, including CEO Alex Karp and Chairman Peter Thiel, among others.
With this backdrop, let's look at two cheaper AI stocks that are growing revenue at a similar rate to Palantir and that investors might consider as alternatives.
For those who don't know AppLovin(NASDAQ:APP)it is an adtech company for the mobile gaming industry. It also has an existing application portfolio.
AppLovin has grown revenue at a faster rate than Palantir, with revenue growth of 39% last quarter compared to the latter's 30%. The company's strong growth stems from its AI-powered adtech platform Axon-2, which has helped transform the way mobile gaming app companies attract new users and better monetize their games.
Since its launch in the second quarter of last year, AppLovin has seen considerable growth in its software platform business, with existing customers spending more money on its platform and gaining new customers.
More importantly, from an investment perspective, even though AppLovin stock has outperformed Palantir this year, up about 750% as of this writing, it continues to trade at a low price-to-price ratio. Much more reasonable forward earnings (P/E) of 54. based on analyst estimates for 2025 and a price-to-earnings-to-growth (PEG) ratio of 1.2.
A PEG ratio below 1 is generally considered undervalued, but growth stocks such as AppLovin will often post multiples well above 1. Likewise, the stock trades at a more modest 22.5 times that sales expected for next year.
AppLovin seems to have clearly taken business away from its rival Unity softwarewhose similar Grow Solutions segment saw revenue fall 5% last quarter to $298 million. This compares to the 66% year-over-year revenue growth, to $835 million, that AppLovin saw for its software platform revenue.
Going forward, the company believes it can grow its mobile gaming customer revenue by 20% to 30% per year. However, the company has a huge opportunity as it looks to expand its platform into other verticals, starting with e-commerce. The company has started testing this solution with good results, and management expects it to contribute significantly to revenue next year.
If AppLovin's Axon-2 adtech platform manages to move beyond mobile gaming and into the broader e-commerce category, its stock should see continued strong upside.
Image source: Getty Images.
Although Palantir and AppLovin stock have had good years, the same cannot be said for Palantir and AppLovin stock. SentinelOne(NYSE:S)whose shares are close to break-even for the year as of this writing. However, the company continues to have strong potential for the future.
SentinelOne is a cybersecurity company whose Singularity platform uses AI to predict, monitor and eliminate threats. It can be deployed in public, private, or hybrid cloud environments and is an endpoint protection solution that rivals Crowd strike.
One of the company's biggest selling points is that its platform can automatically roll back any changes made before an attack occurs. This feature gained more attention after the major CrowdStrike outage, as CrowdStrike customers had to implement tedious manual fixes that crippled their businesses, such as Delta Airlineswho sued CrowdStrike for lost $500 million in revenue. For its part, CrowdStrike sued its client, claiming that it was Delta's own negligence that caused its problems.
SentinelOne had already been growing revenue rapidly before the incident, with revenue growth of 36% in the first half of its fiscal year ended July 31. Given its size, any additional activity resulting from CrowdStrike's outage will be a big bonus.
Meanwhile, earlier this year the company scored a major victory when it struck a deal with Lenovo to provide endpoint security for all new personal computers (PCs) it sells. Lenovo is the world's largest PC vendor with a market share of around 25%, selling around 59 million PCs last year. Lenovo will also offer current customers the ability to upgrade their security to SentinelOne's Singularity platform, and will create a new Managed Detection and Response (MDR) service using AI and EDR capabilities. endpoints) based on SentinelOne's Singularity platform.
The Lenovo deal and any additional activity that may result from the CrowdStrike outage are expected to fuel SentinelOne's growth in 2025 and beyond. Meanwhile, the stock is cheap, trading at a P/S multiple of less than 8.5 with revenue growth of over 30%.
The combination of strong growth and an attractive valuation makes SentinelOne an alternative AI investment worth considering.
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Geoffrey Seiler holds positions within SentinelOne. The Motley Fool ranks and recommends AppLovin, CrowdStrike, Palantir Technologies and Unity Software. The Motley Fool recommends Delta Air Lines. The Mad Motley has a disclosure policy.
