Two of this year’s hottest stocks are both darlings of the artificial intelligence (AI) movement. Data analysis software developer Palantir Technologies(NASDAQ: PLTR ) and cyber security experts CrowdStrike(NASDAQ: CRWD ) 2024 has been in the headlines for quite some time — albeit for many different reasons.
While Palantir has finally proved it That it is a rising star in the enterprise software space, CrowdStrike’s reputation suffered a major blow earlier this year when a glitch in its platform caused unprecedented outages for many of its customers.
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Still, I remain bullish on CrowdStrike’s long-term narrative — so much so that I think the company could be worth more than Palantir by the next decade.
Below, I’m going to outline Palantir’s rapid ascent to the top of the AI software field and explain how CrowdStrike may emerge as a more valuable company in the long run.
At the time of this writing, Palantir stock has gained 287% in 2024 and is the second best performing stock. S&P 500.
A key driver behind Palantir’s growth has been high demand for its Artificial Intelligence Platform (AIP) software. Until the release of the AIP, Palantir was widely regarded by skeptics as a consulting operation for the federal government with limited software capabilities. But over the past year, Plantir has turned that narrative on its head.
In the last 12 months, Palantir has grown its customer base by 39%. Even more impressively, the company has made rapid inroads into the private sector, growing its business customer base by more than 50% for the last 12-month period ended September 30.
The obvious benefit of increased customer base is faster revenue. But what makes an investment in Palantir even more special is the company’s ability to expand margins and generate net income with positive free cash flow and growing revenue.
All of these factors make Plantir look like a no-brainer investment opportunity… that is, until you take a look at the chart below.
What’s clear in the chart above is that Palantir’s price-to-sales (P/S) ratio of 65 is not only the highest in this group, but nearly triple that of the next closest comparable business. While it could be argued that Palantir deserves a premium multiple, the stock has experienced outsized valuation expansion during another short period. Frankly, I think this is a very dynamic that is causing some hedge funds to materially cut their exposure to Palantir and take profits.
Image source: Getty Images
I’ll get the obvious point out of the way up front: CrowdStrike is by no means a cheap stock. Despite a material selloff driven by security outages over the summer, the stock still trades at a meaningful premium above its peers.
Still, I see some key differences between an investment in CrowdStrike and one in Palantir.
As I explored earlier, CrowdStrike was in rare company during the height of the COVID-19 pandemic a few years ago. In fact, demand for CrowdStrike’s products has actually increased during the COVID-19 recession. I see two reasons for this. The obvious reason is that work-from-home protocols became the norm during the peak days of the pandemic. As such, businesses need to double down on cybersecurity protocols on work-issued devices during this phase of remote work.
However, taking it a step further, I would argue that CrowdStrike is well-positioned during any economic cycle as investing in cybersecurity is increasingly becoming a non-negotiable.
In other words, while data analytics is important, when budgets are tight, Palantir’s value proposition becomes harder to justify during tough times. In my view, the same cannot be said for cyber security.
CrowdStrike’s security outage incident occurred on July 19. About a month later, the company reported earnings for its second quarter of fiscal 2025 (ended July 31). To me, the most important figure in that report was Annual Recurring Revenue (ARR), which was $3.9 billion.
Fast forward to Q3, when CrowdStrike ended the quarter with more than $4 billion in ARR.
Despite any reputational damage from the outage, CrowdStrike still managed to increase its ARR over the past two quarters. I think this is a testament to the company’s superior products, and the heavy reliance its customers have on CrowdStrike’s security backbone.
At the end of the day, I think both Palantir and Crowdstrike are expensive stocks. However, Palantir’s valuation is inflated and the stock is overbought. As such, the company has to prove it can grow at this premium valuation — which, given how intense the enterprise software landscape is, will be no easy feat. Over time, it may become more challenging to compete with existing software providers even if Palantir has a superior product. In the long run Palantir’s capabilities may boil down to price compared to competing platforms.
Conversely, I think businesses are going to continue to increase investment in cybersecurity as fraud and ransomware threats increase and become more sophisticated. Given CrowdStrike’s proven ability to grow during difficult economic times such as recessions as well as challenging business-specific times (ie outages), I think the company will continue to grow sales, expand margins, and compound over the next several years. Positioned for profit.
For these reasons, I think CrowdStrike has a better chance of experiencing an expanded valuation from current levels and could surpass Palantir if the software developer shows any sign of long-term growth.
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Adam Spatacco Positions at Palantir Technologies. The Motley Fool has positions in and recommends Atlassian, CrowdStrike, Datadog, Fortinet, MongoDB, Okta, Palantir Technologies, ServiceNow, Snowflake, Workday, and Zscaler. The Motley Fool recommends Palo Alto Networks. Motley Fool has a Disclosure Policy.
