Artificial intelligence (AI) has been a hot investment sector, but AI stocks are cooling off as economic uncertainty looms amid President Donald Trump's tariff policies. This presents an opportunity to buy shares in AI companies at a lower price, improving the potential for attractive returns for the long-term investor.
Two companies to consider are Rigetti Computing(NASDAQ: RGTI) and Palantir Technologies(NASDAQ: PLTR). The former builds quantum computers, which hold the promise of lifting AI to new heights. The latter provides an AI-powered data platform.
Although Rigetti and Palantir offer tech that may help their businesses prosper, one is a superior AI investment right now. Here's a dive into both to determine which company is likely to do better over the long run.
A look at Rigetti Computing
What makes Rigetti an intriguing AI investment is its focus on quantum computing. The tech uses subatomic particles to perform calculations at speeds impossible even for today's supercomputers. This can increase the potency of AI, enabling solutions to complex problems in medicine, manufacturing, and many other industries.
As investors became aware of quantum computing's potential, Rigetti's shares underwent a mind-boggling surge in the past few months. The stock was less than $1 in September, but by January, it hit $21.42.
Since then, Rigetti's share price has plunged, recently trading at about $8.90, and it's understandable why. The company released 2024 results on March 5, and they weren't pretty. Revenue last year was $5.7 million, a sharp drop from 2023's $9.2 million.
Not only did sales fall in 2024, but expenses went up. Rigetti's cost of revenue nearly doubled to $5.1 million from 2023's $2.8 million. This contributed to a net loss of $201 million in 2024, a huge plunge from the net loss of $75.1 million in the prior year.
However, the shares were bolstered by news that Rigetti is partnering with Quanta Computer, a manufacturer of computer servers. Quanta will invest $100 million into helping Rigetti deliver a quantum computer for commercial use.
Currently, Rigetti's quantum machines are not ready for widespread use, limiting its ability to attract customers. Some industry forecasts estimate it could be years, perhaps decades, before quantum computers are ready for mass adoption due to the difficulties of working with subatomic particles.
Reasons to consider Palantir stock
Like Rigetti, Palantir's stock skyrocketed during the past year, with its share price up 226% through the week ended March 7. The reason is the company's success with its Artificial Intelligence Platform (AIP).
AIP helps organizations build and deploy AI applications in as little as a few days. The rapid pace of AI deployment enabled by AIP drove businesses and governments to Palantir's platform. Consequently, the company's 2024 sales grew nearly 30% year over year to $2.9 billion.
Not only did sales rise, but Palantir's financials are excellent. Its annual net income of $467.9 million was more than double the $217.4 million earned in 2023. Exiting 2024, its balance sheet held $6.3 billion in total assets, with $2.1 billion of that in cash and equivalents. Palantir's cash pile alone eclipsed total liabilities of $1.2 billion.
The company expects sales growth to continue in 2025. Palantir forecast revenue of at least $3.7 billion this year, meaning another year of nearly 30% growth.
Choosing between Rigetti and Palantir
After examining how both companies fared in 2024, deciding between Rigetti or Palantir becomes straightforward. Palantir is the better AI stock to invest in for the long haul.
Rigetti's quantum devices hold the promise of powerful computers someday, but its declining sales, rising costs, and lack of profitability may doom the firm to extinction before its tech can take off. Meanwhile, Palantir's strong sales growth and financials demonstrate the success of its business and AI platform.
Another deciding factor between the two is valuation. Since Rigetti is not profitable, the price-to-sales (P/S) ratio is used to assess this. The metric measures how much investors are willing to pay for every dollar of revenue.
Rigetti's P/S ratio is much higher than Palantir's, and considering how much it's gone up in such a short time, Rigetti's share price looks overvalued. Palantir's better stock valuation adds another reason it's the no-brainer AI investment over Rigetti.
That said, Palantir stock's beta value is quite high at more than 2 at the time of writing, indicating its price is very volatile. Although the shares fell along with the broader market and are well off their 52-week high of $125.41 reached in February, you may want to put Palantir on your watch list, and see if shares drop further 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 has a disclosure policy.
