Having nearly quadrupled this year while also joining the S&P 500 index, Palantir (NASDAQ: PLTR) has no doubt gained a lot of investor attention. However, with the stock trading at a very frothy valuation and insiders selling, the question is should investors turn their attention to other companies that are benefiting from artificial intelligence (AI)?
The biggest knock on Palantir is not its business, which has been seeing accelerating growth as commercial and government customers begin adopting its AI platform, but a valuation that has ballooned to a forward price-to-sales (P/S) multiple of 45.7 times analyst estimates for 2025 revenue, and a staggering 147 times forward price-to-earnings (P/E) ratio, as of this writing.
That's a valuation well above where SaaS companies traded at their heights back in 2020-2021. Insiders, meanwhile, have aggressively been selling shares in recent months, including CEO Alex Karp and Chairman Peter Thiel, among others.
Against that backdrop, let's look at two cheaper AI stocks growing revenue at a similar rate as Palantir that investors could consider as alternatives.
AppLovin
For those unfamiliar with AppLovin (NASDAQ: APP), it is an adtech company for the mobile gaming industry. It also owns a legacy portfolio of apps as well.
AppLovin has been growing its revenue at a faster pace than Palantir, with revenue growth of 39% last quarter compared to 30% for the latter. The company's strong growth stems from its Axon-2 AI-powered adtech platform, which has helped transform how mobile gaming app companies attract new users and better monetize their games.
Since its launch in the second quarter of last year, AppLovin has seen tremendous growth from its software platform business, as existing customers have spent more money on its platform and its gained new customers.
More importantly, from an investing standpoint, while AppLovin's stock have has actually outperformed Palantir this year, up about 750% as of this writing, it continues to trade at a much more reasonable forward price-to-earnings (P/E) of 54 based on 2025 analyst estimates, and a price/earnings-to-growth (PEG) of 1.2.
APP PE Ratio (Forward 1y) data by YCharts.
A PEG ratio of under 1 is generally considered undervalued, but growth stocks such as AppLovin will often command multiples well above 1. Similarly, the stock is tradeing at a more modest 22.5 times next year's expected sales.
AppLovin appears to have clearly taken business away from rival Unity Software, whose similar Grow Solutions segment saw revenue fall 5% last quarter to $298 million. That compares to the 66% year-over-year growth in revenue to $835 million that AppLovin saw for its software platform revenue.
Going forward, the company thinks it can grow its mobile gaming customer revenue by between 20% to 30% a year. However, it has a huge opportunity as it looks to extend its platform into other verticals, starting with e-commerce. The company has begun piloting this solution with early strong results, and management expects it to be a meaningful contributor to revenue next year.
If AppLovin's Axon-2 adtech platform can successfully move beyond mobile gaming and into the broader e-commerce category, there should be strong continued upside in its stock.
Image source: Getty Images.
SentinelOne
While Palantir and AppLovin stocks have had great years, the same can't be said for SentinelOne (NYSE: S), whose shares are about breakeven on the year as of this writing. However, the company continues to have strong potential moving forward.
SentinelOne is a cybersecurity company whose Singularity Platform uses AI to predict, monitor, and eliminate threats. It can be deployed in public, private, or hybrid cloud environments and is an endpoint protection solution that is a rival to CrowdStrike.
One of the company's big selling points is that its platform can automatically roll back any changes to before an attack occurs. This feature has gained more attention after the major CrowdStrike outage, as CrowdStrike customers had to implement time-consuming manual fixes that crippled their businesses, such as Delta Airlines, which has sued CrowdStrike for the loss of $500 million in revenue. For its part, CrowdStrike has countersued its customer, claiming that it was Delta's own negligence that led to its issues.
SentinelOne had already been growing its revenue quickly before the incident, with revenue growth of 36% in the first half of its fiscal year ended July 31. Given its size, any additional business that comes its way as a result of the CrowdStrike outage will be a big bonus.
Meanwhile, earlier this year the company scored a major win when it agreed to a deal with Lenovo to provide endpoint security for all the new personal computers (PCs) it sells. Lenovo is the world's biggest PC vendor with about a 25% market share, selling approximately 59 million PCs last year. Lenovo will also give current customers the option to upgrade their security to SentinelOne's Singularity Platform, and it will build a new Managed Detection and Response (MDR) service using AI and EDR (endpoint detection and response) capabilities based on SentinelOne's Singularity Platform.
The Lenovo deal and any additional business that may come its way as a result of the CrowdStrike outage should power SentinelOne's growth in 2025 and beyond. Meanwhile, the stock is not pricey, trading at a P/S multiple of under 8.5 with over 30% revenue growth.
S PS Ratio (Forward 1y) data by YCharts.
The combination of strong growth and an attractive valuation make SentinelOne an alternate AI investment to consider.
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Geoffrey Seiler has positions in SentinelOne. The Motley Fool has positions in and recommends AppLovin, CrowdStrike, Palantir Technologies, and Unity Software. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
