Palantir Technologies‘ (NYSE: PLTR) The stock price has rallied about 50% this year as the data analytics company dazzled the bulls with accelerating revenue growth and soaring profits. Its revenue grew 17% in 2023, and it expects 20%-21% in 2024 as government business stabilizes and US commercial business accelerates. It has also remained profitable for six consecutive quarters, and analysts expect 71% revenue growth this year.
From 2023 to 2026, analysts expect Palantir to grow revenue at a compound annual growth rate (CAGR) of 20% as EPS grows at a CAGR of 56%. That rosy outlook, along with Palantir’s potential growth in the AI market, sent the stock higher.
But Palantir’s stock isn’t cheap now at 21 times this year’s sales, and it may struggle to maintain that premium if headwinds and competition dampen near-term growth. So if you’re worried that the stock is going to lose again, you should check out two AI companies that are undervalued by just over Palantir in three years: District Super Micro Computer (NASDAQ: SMCI) and Baidu (NASDAQ: BIDU).
What are these two AI companies doing?
Super Micro Computer, better known as Supermicro, produces high-performance, liquid-cooled servers for demanding data center tasks. It generates approximately half of the revenue from dedicated AI servers, and long-term partnerships with Nvidia giving access to the chipmaker’s new data center GPUs before many of its top competitors. Bank of America expects its dedicated AI server market share to grow from 10% to 17% over the next three years.
Baidu has the largest online search engine in China. It also owns the majority of shares iQiyi, one of the country’s leading streaming video platforms, the Apollo software platform for autonomous vehicles, and the Baidu AI Cloud platform. It generates most of its revenue from online advertising, but has diversified its core business with Managed Business Pages (which gives it the power to manage all its client brands in the ecosystem) to reduce its reliance on traditional search and display advertising. It also improved its mobile app with more tools and expanded its non-marketing division (cloud, AI, etc.) to reduce its exposure to the macro-sensitive ad market.
Why might these two companies be more valuable than Palantir?
Supermicro and Baidu could become more valuable than Palantir as both appear to have lower than expected sales growth over the next three years.
|
Company |
District market |
Price-to-Sales Ratio (Current Year) |
Estimated Revenue CAGR (Next 3 Years) |
|---|---|---|---|
|
Palantir |
$57.6 billion |
21.3 |
20% |
|
Supermicro |
$49.6 billion |
3.3 |
58% |
|
Baidu |
$31.0 billion |
1.6 |
6% |
Data source: Yahoo Finance, Marketscreener.
If Palantir maintains a high price-to-sales ratio until 2026, it could be $80.6 billion in the bull case scenario in 2026. Cut it in half.
If Supermicro matches analyst expectations and just maintains the same price-to-sales ratio over the next three years, it could be worth around $93 billion by 2026. It’s likely to get a higher valuation if it eventually gets reassessed as a higher-end AI. Save instead of just making a legacy server like Dell Technologies.
Baidu’s recent growth has been buoyed by competitive and macro headwinds in China, but its value has been severely compressed by tensions between the US and China. If these tensions ease, we could see Baidu stock trade at about 4 to 5 times forward sales again – just like it did about four years ago. If Baidu just matches analysts’ estimates and trades at about 4 times sales by 2026, it’s worth $88 billion. But this is a base-case scenario: it may be more cost-effective if the new cloud and AI investments pay off and increase sales again.
But are Supermicro and Baidu better buys than Palantir?
We have to take these estimates with a grain of salt, but they do indicate that Palantir’s stock is more than Supermicro and Baidu’s. Benjamin Graham said: “In the short term, the market is a voting machine, but in the long term, it is a weighing machine.” I believe Palantir is still in the voting phase as investors pay a premium for AI-powered features, but Supermicro and Baidu have advanced to the scale phase — so they could outperform Palantir in the long run.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Baidu, Bank of America, Nvidia, and Palantir Technologies. The Motley Fool recommends iQIYI. The Motley Fool has a disclosure policy.
Prediction: 2 AI Stocks That Will Outperform Palantir 3 Years From Now was originally published by The Motley Fool
