Analysts at Forrester Research recently recognized Palantir Technologies(NYSE: PLTR) and Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG) as market leaders in artificial intelligence (AI) and machine learning platforms, which are collections of tools that support model training and application development.
However, billionaire Ken Griffin of Citadel, the most profitable hedge fund in history as measured by net gains since inception, sold Palantir's stock and bought Alphabet's stock during the third quarter, as detailed below:
- Sold 5.1 million shares of Palantir, reducing Citadel's position by 91%
- Bought 244,835 shares of Alphabet, increasing Citadel's stake by 20%.
Here's what investors should know about these market-leading AI companies.
Palantir: The stock Ken Griffin's Citadel sold
Palantir specializes in data analytics, but the company has become a major player in the artificial intelligence (AI) platforms market due to its Artificial Intelligence Platform (AIP). AIP is a relatively new product that adds generative AI capabilities to its core analytics platforms, Gotham and Foundry. Collectively, those products let businesses integrate and query data for insights that improve decision-making.
Palantir says the quality that differentiates its software from other data analytics products is an ontology-based architecture. Ontology refers to a software layer that links digital data to real-world objects and defines the relationships between them. Users can interact with the ontology with analytical tools for the purpose of analyzing information and automating tasks.
Palantir reported solid results in the third quarter. Its customer count jumped 39% to 629, and the average existing customer spent 18% more. In turn, revenue increased 30% to $726 million, marking the fifth straight sequential acceleration in sales, and non-GAAP (non-generally accepted accounting principles) earnings jumped 43% to $0.10 per diluted share. Suffice it to say that Palantir's business is booming.
However, Malik Ahmed Khan at Morningstar recently drew a key distinction between the business and the stock. "If you look at the fundamental business quality, Palantir is an incredible name with a lot of opportunity in AI, and beyond AI in big data," he told Yahoo Finance. "But when we look at valuation, it just seems like the fundamentals do not align."
Wall Street expects Palantir's adjusted earnings to increase 31% over the next 12 months. That makes its current valuation of 188 times adjusted earnings look absurdly expensive. Investors should avoid this stock, and current shareholders should consider trimming their positions. Unless earnings growth outstrips expectations by a wide margin, Palantir shares are likely headed for a meltdown at some point.
Alphabet: The stock Ken Griffin's Citadel bought
Alphabet is the parent of Google, a company with two important growth engines. First, Google is the largest adtech company in terms of revenue, and digital ad spending is expected to grow at 10% annually through 2028. Second, Google runs the third-largest public cloud, and cloud services spending is expected to grow by 19% annually over the same period, according to International Data Corp.
One of investors' most pressing concerns is that Alphabet will lose its dominance in internet search as generative AI becomes more sophisticated. That would diminish its ability to engage consumers and source data, which would hurt its advertising business. But Alphabet is using AI expertise cultivated over decades to tackle the problem.
For instance, the company recently added generative AI overviews to Google Search to help internet users understand topics more quickly. CEO Sundar Pichai says those enhancements are increasing usage and satisfaction, particularly among young adults. The company has also introduced AI tools that generate media content for advertising campaigns and tools that help brands target their advertising more effectively.
Beyond advertising, Google is capitalizing on the demand for AI cloud computing services. Forrester Research recently recognized the company as a leader in AI infrastructure solutions and foundational large language models. Strength in those areas helped Google gain a percentage point of market share in the third quarter, according to Synergy Research Group. Meanwhile, Amazon and Microsoft lost share.
Alphabet reported encouraging financial results in the third quarter, beating expectations on the top and bottom lines. Revenue rose 15% to $88 billion, marking a sequential acceleration from 14% in the preceding quarter. Meanwhile, GAAP earnings increased 37% to $2.12 per diluted share, reflecting operating margin expansion of four percentage points.
Going forward, Wall Street expects Alphabet's earnings to increase 20% over the next 12 months. That makes the current valuation of 24 times earnings look quite reasonable. Investors should feel comfortable buying a small position in this stock today.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
- Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $22,819!*
- Apple: if you invested $1,000 when we doubled down in 2008, you’d have $42,611!*
- Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $444,355!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of November 11, 2024
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Amazon and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Amazon, 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 disclosure policy.
