Better Artificial Intelligence Stock: Palantir vs. C3.ai

Artificial intelligence (AI) holds incredible potential to change industries. Some have likened AI to the biggest transformational technology since the internet.

Plenty of companies are trying to capitalize on AI's secular trend. Two are Palantir Technologies (NYSE: PLTR) and C3.ai (NYSE: AI). The former uses AI to derive insights from data, and the latter provides organizations with turnkey and custom AI software.

The AI market is expected to expand rapidly from a projected $184 billion this year to $827 billion by 2030. Given this growth, is Palantir or C3.ai the better AI investment for the long haul? Here's a look at each to reach a conclusion.

The case for Palantir

Palantir has been helping the U.S. government analyze data since 2003, but it just released its artificial intelligence platform (AIP) in 2023. With its inception, AIP helped to spur the expansion of Palantir's non-government business.

In the second quarter, Palantir experienced 33% year-over-year sales growth to $307 million in its commercial division. This contributed to the firm's Q2 revenue reaching $678 million, a 27% jump up from the previous year.

Not only is Palantir's revenue growing, but its financial health is also excellent. It exited Q2 with a net income of $135.6 million, up from $27.9 million in 2023. It also boasted Q2 adjusted free cash flow (FCF) of $149 million, an increase from the prior year's $96 million.

AIP successfully attracted commercial customers because the platform enables businesses to go from an AI concept to real-world implementation in as little as a few days. This ability is no small feat, and according to Palantir's CTO, Shyam Sankar, "therein lies our entire opportunity in the market."

As a follow-up to AIP's success, Palantir introduced a new product built on AIP called Warp Speed. This solution is meant to address bottlenecks in the manufacturing industry by leveraging AI to improve supply chains and an organization's manufacturing processes.

If Palantir can successfully tackle this massive market, which represented nearly $3 trillion in U.S. gross domestic product (GDP) last year, it could fundamentally transform its fortunes.

A look at C3.ai

C3.ai began in 2009 as an energy management company and transitioned to AI software in 2019. Its energy industry roots enabled the firm to form a joint venture with energy giant Baker Hughes to deliver AI tech to the oil and gas sector. This allowed C3.ai to capture customers such as Shell and ExxonMobil.

C3.ai's software platform can address various situations where AI can help a business, such as fraud detection for banks. The company generated 84% of its revenue from subscriptions in its 2025 fiscal first quarter, which ended July 31. The remainder came from services such as training and customer support.

AI demand led to rapid revenue growth for the company. In its fiscal Q1, sales hit $87.2 million, a 21% year-over-year increase. This extends the double-digit revenue growth C3.ai enjoyed in its 2024 fiscal year when sales reached $310.6 million, a 16% year-over-year increase.

The firm also produced Q1 FCF of $7.1 million, a substantial improvement over the prior year's negative FCF of $8.9 million. Yet, C3.ai is not profitable. Its Q1 net loss totaled $62.8 million.

In addition, the company's partnership with Baker Hughes is contracted to end in April 2025. This is a key relationship for C3.ai, with some estimates suggesting Baker Hughes accounts for over a third of C3.ai's revenue.

Deciding between C3.ai and Palantir

Choosing Palantir or C3.ai as the better investment isn't straightforward. While both enjoy strong revenue growth, C3.ai's lack of profitability would seem to make Palantir the better AI business to invest in. Yet, Palantir's success drove up its stock price, with shares skyrocketing over 150% in the past 12 months.

At this point, the firm's shares look quite pricey when comparing its price-to-sales (P/S) ratio to C3.ai. The P/S ratio tells you how much investors must pay per share for a dollar's worth of revenue.

Data by YCharts. PS Ratio = price-to-sales ratio.

Wall Street agrees. The consensus among Wall Street analysts is a "hold" rating with a median share price target of $28 for Palantir stock. Given that shares trade for around $43 at the time of this writing, Wall Street's price target indicates a belief that Palantir shares are overpriced.

That said, C3.ai is far from a buy. Like Palantir, the consensus among Wall Street analysts is a "hold" rating for C3.ai stock, with a median share price target of $22.

Adding to this is uncertainty around the renewal of C3.ai's partnership with Baker Hughes. Consequently, any decision around buying C3.ai shares should be delayed until this partnership situation is resolved.

If not for Palantir's sky-high valuation, it would be the better AI investment over C3.ai, given its superior financials and AIP's success and future potential with Warp Speed. But at this time, it's best to wait for a drop in Palantir's share price before deciding to buy.

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Robert Izquierdo has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.