Better AI Stock: Palantir and Microsoft

An estimated $1 trillion will be invested in expanding artificial intelligence (AI) services in everything from graphics processors to software over the next few years. Many technology companies will benefit from this huge investment, but this will be for the best in the long run. AI stocks to have?

Now let’s take a quick look at two major AI players — Palantir Technologies (NYSE:PLTR) And Microsoft (NASDAQ:MSFT) — to see how each wins in its respective markets and which might be the better AI stock in the coming years.

Image source: Getty Images.

Palantir case

Palantir has spent years building advanced artificial intelligence systems that government agencies use to examine vast amounts of data and make the best decisions. The bulk of its sales still come from government contracts (just over half), but the company has expanded its AI footprint into the commercial sector in the last few years.

Commercial segment revenue increased 33% in the second quarter (ending June 30) and accounted for approximately 45% of Palantir’s total sales. Why is increasing business sales important for Palantir? Because it proves that the company’s AI technology is robust and can be reused in the rapidly expanding AI market.

Not every company can claim this. Consider what chief technology officer Shyam Sankar had to say about the company’s recent earnings call on its advantage over AI rivals: “(W)e’s completely bottlenecked going from prototyping to manufacturing. And that’s where we are, the most differentiated.”

Indeed, while others are trying to catch up, Palantir is already benefiting from years of AI investments. Management estimates U.S. commercial sales will increase 47% to $672 million in 2024. Leadership also raised its full-year sales target to a range of $2.74 billion to $2.75 billion, up nearly 23% from last year.

Case for Microsoft

Microsoft may not be the most exciting name in AI right now, but it’s certainly one of the most important. The company has already invested nearly $13 billion in ChatGPT creator OpenAI, and its initial investment in one of the most influential AI start-ups is already paying off.

Microsoft quickly realized its investment by integrating its core ChatGPT technology into its popular Microsoft 365 suite of software products, GitHub developer platform, and Azure cloud computing services.

The biggest AI opportunity out of all this probably comes from Azure. Microsoft has the second largest cloud computing service by market share (currently 25%). Amazonand new AI tools are expanding their reach. Management said in the fourth quarter: earnings call Azure currently has 60,000 AI customers; This figure is approximately 60% higher than the previous quarter.

Why is this important? Because sales in the cloud computing market are estimated to reach $2 trillion by 2030. Goldman Sachs. AI is already driving some of this growth, and Microsoft should benefit as more companies turn to AI cloud services to enhance their own AI offerings.

Microsoft is the better AI stock

While Palantir has a lot of opportunity in the AI ​​market, there are two reasons why I think Microsoft’s stock is a better option. First, it’s much cheaper than Palantir’s shares.

Microsoft has shares forward price/earnings ratio (P/E) is currently 32. While it’s not exactly cheap, it’s much cheaper than Palantir’s forward P/E ratio of 87.

Secondly, Microsoft’s significant investment in OpenAI and its position in the cloud computing market means that the company has access to some of the most advanced artificial intelligence currently available and an expanding market for applying them.

With a cheaper price tag and a huge AI cloud market to tap into, Microsoft is probably a better AI play than Palantir in the long run.

Should you invest $1,000 in Palantir Technologies right now?

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John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, is a board member of The Motley Fool. Chris Neiger It has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Goldman Sachs Group, Microsoft and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a feature disclosure policy.