PLTR - The AI Investment Race In Software: Snowflake Vs. Palantir

2024-06-17 18:36:00 ET

Summary

• Snowflake and Palantir are two of the leading software companies offering generative AI solutions to enterprises.
• Both companies have strong offerings - although most of what is being offered by Snowflake is just now generally available.
• Investors are very concerned about Snowflake's competitive positioning, particularly vis-à-vis Databricks, still a private company.
• We believe that many investor concerns regarding Snowflake are either overblown, out of date or totally spurious.
• We recommend shares of Snowflake compared to Palantir, and absolutely as well, because of its attractive relative valuation based on our estimates.

Can Snowflake, the star-crossed contender put up a reasonable AI strategy and will Palantir's AI Platform accelerate its growth?

A few years ago, SA ran a contest in which participants were asked to write about comparing two of the high growth IT vendors of the last decade, Palantir Technologies Inc. ( PLTR ) and Snowflake Inc. ( SNOW ). I wrote an article then arguing that Palantir was a better choice although truth to tell I didn't quite recommend it. I suppose at one level, the call has weathered reasonably - Palantir shares have outperformed Snowflake shares significantly. That said, Palantir shares are basically flat over the last 3 years, while Snowflake shares are down by almost 50%.

Recently a subscriber to my Ticker Target investment service asked me if I would reprise my discussion of the two companies and see which stood where in my investment universe. This is a reprise of the comparison I made 3 years ago. The results are different; I recommend shares of Snowflake now and while I would like to recommend shares of Palantir, its relative valuation simply is too high for me at this point.

That, I realize, is a bit of a contrarian call, especially on the pages of SA. Palantir has an average buy rating from SA analysts while Snowflake is rated by the SA analyst cohort as a hold. The Quant service that SA offers labels both stocks as a hold....

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