Nearly quadrupled this year while also joining the S&P500 index, Palantir(NASDAQ:PLTR) has undoubtedly received a lot of attention from investors. But with the stock trading at a very frothy valuation and insiders selling, the question is should investors turn their attention to other companies benefiting from artificial intelligence (AI)?
The biggest blow to Palantir isn’t the company, which is seeing accelerated growth as commercial and government customers begin to adopt its AI platform, but a valuation that has risen to a price-to-sales (P/S) multiple of 45.7 time. analysts estimate 2025 revenue and a staggering 147x price-to-earnings (P/E) ratio at the time of writing.
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That’s a valuation well above the level at which SaaS companies traded at their peak in 2020-2021. Insiders have been aggressively selling shares in recent months, including CEO Alex Karp and Chairman Peter Thiel.
Against that backdrop, let’s take a look at two cheaper AI stocks that are growing revenue at a similar pace to Palantir and that investors could consider as an alternative.
For those unfamiliar with it AppLovin(NASDAQ: APP)it is an adtech company for the mobile gaming industry. It also owns an outdated portfolio of apps.
AppLovin has been growing its revenue at a faster pace than Palantir, with revenue growth of 39% last quarter, compared to 30% for the latter. The company’s strong growth comes from its Axon-2 AI-powered adtech platform, which has helped transform the way mobile gaming app companies attract new users and better monetize their games.
Since launching in the second quarter of last year, AppLovin has seen tremendous growth in its software platform business as existing customers have spent more money on its platform and acquired new customers.
More importantly, from an investment perspective, while AppLovin stock has actually outperformed Palantir this year, up about 750% at the time of writing, the stock continues to trade at a much more reasonable price-to-earnings ratio (P/ W) of 54. based on analyst estimates for 2025 and a price/earnings-growth ratio (PEG) of 1.2.
APP PE Ratio data (1 year ahead) according to YCharts.
A PEG ratio of less than 1 is generally considered undervalued, but growth stocks like AppLovin will often achieve multiples well above 1. Likewise, the stock trades at a more modest 22.5 times next year’s expected sales.
AppLovin clearly seems to have taken things away from its competitors Unity softwarewhose comparable Grow Solutions segment saw revenue decline 5% last quarter to $298 million. That compares with 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 revenue from mobile gaming customers by 20% to 30% per year. However, it has a huge opportunity as it looks to expand its platform into other industries, starting with e-commerce. The company has begun testing this solution and has seen strong results early on, and management expects it to contribute meaningfully to revenue next year.
If AppLovin’s Axon-2 adtech platform can successfully expand beyond mobile gaming and into the broader e-commerce category, there should be strong continued upside potential in the stock.
Image source: Getty Images.
While Palantir and AppLovin stocks have had great years, the same can’t be said SentinelOne(NYSE:S)whose shares, at the time of writing, are approximately break-even this year. However, the company still has great 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 a competitive endpoint protection solution CrowdStrike.
One of the company’s big selling points is that the platform can automatically roll back all changes before an attack occurs. This feature has received increased attention following the major CrowdStrike outage, as CrowdStrike customers had to implement time-consuming manual solutions that crippled their business, such as Delta Airlinesthat has sued CrowdStrike for the loss of $500 million in revenue. CrowdStrike, for its part, has countered its customer, claiming that Delta’s own negligence led to the problems.
SentinelOne had already been growing its revenue rapidly before the incident, with revenue growth of 36% in the first half of the fiscal year ended July 31. Given its size, any additional business that comes its way as a result of the CrowdStrike outage will be a major bonus.
Meanwhile, the company scored a big win earlier this year when it closed a deal 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 about 25% and sold about 59 million PCs last year. Lenovo will also give current customers the ability to upgrade their security to SentinelOne’s Singularity Platform, and it will build a new Managed Detection and Response (MDR) service using AI and endpoint detection and response (EDR) capabilities based on from SentinelOne’s Singularity Platform.
The Lenovo deal and any additional business that may come its way as a result of the CrowdStrike outage should fuel SentinelOne’s growth in 2025 and beyond. Meanwhile, the stock is inexpensive and trades at a price-to-earnings ratio of less than 8.5, with revenue growth of more than 30%.
S PS Ratio data (1 year forward) according to YCharts.
The combination of strong growth and an attractive valuation makes SentinelOne an alternative AI investment to consider.
Consider the following before purchasing shares in AppLovin:
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Geoffrey Seiler has positions in SentinelOne. The Motley Fool holds positions in and recommends AppLovin, CrowdStrike, Palantir Technologies, and Unity Software. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.
Should You Forget Palantir and Buy These Two Artificial Intelligence (AI) Stocks Instead? was originally published by The Motley Fool
