When it comes to artificial intelligence (AI), chances are you think of the actions of the “Magnificent Seven” such as Microsoft, NvidiaOr Tesla simply by default. But in 2024, a smaller player has emerged from the deepest recesses of the AI field and propelled itself into the spotlight. Darling Business Software Palantir Technologies had a record year in 2024. Shares soared about 350% last year, helping Palantir winner #1 among the actions of S&P500 (INDEXSNP: ^GSPC).
Given such an epic journey, it’s only natural that investors would turn over every stone in an attempt to find the next Palantir. I’m going to explore one of Palantir’s main competitors, a small AI software company known as C3.ai(NYSE:IA). Could C3.ai be the Palantir of 2025?
Enterprise software is a highly competitive industry. One way for small businesses to advance in software sales is to partner with larger incumbents in the industry. During C3.ai’s second quarter of fiscal 2025 (ended October 31), the company closed more than 60% of its deals through this partner ecosystem.
Some of C3.ai’s strategic relationships include cloud hyperscalers such as Microsoft, AmazonAnd Alphabet. Additionally, the company also has alliances with consulting firms Booz Allen Hamilton And Capgemini.
Working with a wide range of large technology companies and specialist consultancy agencies has helped C3.ai expand its end markets. According to the company’s latest financial results, nearly half of new orders came from aerospace and defense contractors, while nearly 30% of deals focused on areas such as manufacturing, energy and utilities, as well as life sciences.
In the table below, I’ve detailed C3.ai’s annual revenue growth rate over the past few quarters:
Category
First quarter of fiscal 2024
Q2 FY2024
Q3 FY2024
Q4 FY2024
First quarter of fiscal 2025
Q2 FY2025
Revenue growth rate % year over year
11%
17%
18%
20%
21%
29%
Data source: C3.ai investor relations.
In just over a year, C3.ai has nearly tripled its revenue growth rate. This alone deserves a nod of approval; However, what’s even more impressive is that C3.ai’s revenue is now growing at roughly the same rate as Palantir’s.
With that in mind, I bet you would think C3.ai stock is skyrocketing. Well, guess again.
Image source: Getty Images.
The chart illustrates the price-to-sales (P/S) ratio for Palantir and C3.ai.
It’s pretty easy to spot the outlier above. The continued expansion of Palantir’s stock valuation has caused a nearly six-fold disparity between it and C3.ai.
To be fair, Palantir is generating positive net profit, while C3.ai is still a cash-burning operation. However, these numbers are all relative: Palantir’s profits are still quite low, as evidenced by the company’s price-to-earnings (P/E) ratio of nearly 400. In other words, despite its profitability, Palantir is much more valued. using the P/S ratio rather than an earnings-based valuation methodology.
Although Palantir has become a favorite among AI investors, there is another side to the company’s high valuation. Expectations for Palantir are now sky high and management faces extraordinary levels of execution risk from investors. If Palantir’s growth train hits a hiccup, shares could see a precipitous decline.
In contrast, C3.ai appears to be in the early stages of development. Revenues are steadily accelerating, net losses are shrinking, and the company’s partnership model appears to be paying off.
Still, I don’t think C3.ai stock will really move into high gear until the company starts turning a profit. Based on management projections and available industry research, consistent profits appear to be a few years away at the earliest.
I think C3.ai stock has some near-term upside potential, but I view an investment in the company as somewhat speculative. I believe a position in C3.ai is warranted for investors with a higher risk tolerance and those willing to hold their position for at least a few years.
Additionally, I encourage investors to only consider a small position in C3.ai at this time. While the company has some momentum, there is still a long way to go before C3.ai can be considered a rock-solid opportunity.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adam Spatacco holds positions at Alphabet, Amazon, Microsoft, Nvidia, Palantir Technologies and Tesla. The Motley Fool holds positions and recommends Alphabet, Amazon, Microsoft, Nvidia, Palantir Technologies and Tesla. The Motley Fool recommends Booz Allen Hamilton and C3.ai and 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.
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