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C3.ai and Palantir represent two distinct perspectives on the fundamental trend of the ever-growing enterprise AI software market. C3.ai specializes in AI algorithms that can be integrated into an organization's existing software in order to automate tasks, enhance employee safety, cut costs, and detect fraud. On the other hand, Palantir's platform collects vast amounts of information from a variety of sources to aid organizations in making better data-driven decisions. When I previously assessed these two volatile stocks, I determined that Palantir's more consistent growth, lack of customer concentration problems, and more manageable losses made it a better investment choice than C3.ai. Yet, since then, Palantir's stock has experienced a 19% decline, while C3's stock has risen by 29%. One might question whether my assessment was incorrect, or if Palantir will still outperform C3.ai in the long run. C3.ai currently serves 236 customers, with the majority being large customers in the energy, industrial, and government sectors. It generates a significant portion of its revenue through a joint venture with the energy conglomerate, Baker Hughes. However, this partnership will come to an end in April 2025 and there is no guarantee that it will be renewed. C3.ai has attempted to prepare for this potential loss by securing new deals with companies such as Google Cloud, Microsoft, Raytheon, and the U.S. Department of Defense. Yet, the present macroeconomic challenges have hindered its growth in recent years. Despite a 38% increase in revenue in fiscal 2022, C3.ai only expects 1% to 7% growth in fiscal 2023. Last year, C3.ai made a shift from a subscription-based model to a usage-based model in an effort to increase sales in a tough market. However, this change could potentially reduce its near-term sales. As C3.ai's growth slows down, it continues to struggle financially. Its net loss more than tripled to $192 million in fiscal 2022 and analysts predict an even wider net loss of $304 million in fiscal 2023. Palantir operates two data mining platforms, Gotham and Foundry, with the former serving government agencies and the latter serving large commercial customers in various industries. Upon going public in 2020, Palantir claimed that Gotham could become the "default operating system for data across the U.S. government" and that Foundry would expand its reach across the private sector. This was backed by Palantir's impressive track record, including its reported role in tracking down Osama Bin Laden and its widespread use among military and law enforcement agencies in the U.S. Palantir is set to report its fourth-quarter 2022 results on February 13th. Despite not having an impressive earnings surprise history, with a negative average surprise of 70.8% in the trailing four quarters, the company is expected to see growth in both its government and commercial segments. The consensus mark for earnings is 3 cents per share, indicating a year-over-year growth of 50%. Looking at its valuation, Palantir trades at a premium to its industry with a Forward P/E ratio of 54.92. Neither of these AI stocks is considered cheap, with C3.ai trading at 11 times its fiscal 2023 sales and Palantir trading at 9 times its 2022 sales. Nevertheless, Palantir remains the superior company, with more stable growth rates, lack of dependence on a single customer, and narrowing losses. The recent rally in C3.ai's stock was driven by hype rather than any substantial improvements, so investors must exercise caution and not be caught off guard by a potential sudden decline.
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