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Palantir Stock vs. Microsoft Stock: Wall Street Says Only 1 Will Head Higher From Here
Enterprises are spending heavily on artificial intelligence (AI)-powered software to drive automation and efficiency, and use data to make smarter and faster decisions. And that trend may be just getting started. The enterprise AI market could grow at an annual rate of 37.6% between 2025 and 2030, according to analysis from Grand View Research.
Two companies poised to see years of growth ahead in the enterprise-software space are Palantir Technologies(NYSE: PLTR) and Microsoft(NASDAQ: MSFT). Both companies have already seen the benefits of massive AI-related spending for their business and shareholders. Palantir stock is up 230% this year alone, as of this writing. Microsoft is up 77% since announcing an increased stake in generative AI leader OpenAI in early 2023.
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Despite the strong outlook for the industry, Wall Street analysts only expect one of these enterprise-software leaders to keep climbing higher over the next 12 months.
Palantir has a median-price target of $38 per share, based on the estimates of 22 analysts. That implies a downside of 30% from its share price, as of this writing.
Microsoft has a median-price target of $500 per share, based on the estimates of 57 analysts. That implies upside of 18% from its share price, as of this writing.
Here's what investors need to know.
Image source: Getty Images.
Palantir: A great company with 30% downside for its stock
Palantir develops software to help government agencies and commercial clients use big data to find insights and create operational efficiencies. Its initial focus on government contracts allowed it to develop a framework that it could apply to big commercial-enterprise customers as well.
Palantir's commercial-customer count is growing quickly, up 51% year over year. U.S. commercial revenue grew 54% year over year in the third quarter, fueling overall growth of 30%.
At the same time, its adjusted-operating margin expanded to 38% from 29% a year ago, as it leverages its growing scale. It's blowing past the Rule of 40, which suggests it could have even more room to grow faster if it spent more on sales and marketing. But CEO Alex Karp would rather focus his attention on building a great product for a few select clients with deep pockets. He suggests that leads to better results in the long term.
Palantir offers two main software platforms, Gotham for government clients and Foundry for commercial clients. It introduced the Apollo platform in 2021 to ensure continuous operations for clients and allow them to run its software in virtually any environment.
More recently, Palantir added its Artificial Intelligence Platform, AIP, which lets customers use natural language to explore and understand their data and automate workflows. Clients can also use AIP to develop applications around their data. AIP has been an essential tool for Palantir to drive demand for its platform among clients, proving the product-focused thesis Karp espouses.
Palantir is doing exceptionally well from an operational standpoint. The problem is the stock is really expensive. Shares currently trade for an enterprise value-to-sales (EV/S) multiple of 46. Even if you look at analysts' 2025 estimates, the multiple only falls to 35. Jeffries analyst Brent Thill pointed out it's the single most expensive name in software after Palantir reported its earnings earlier this month. It's hard to see the company outperforming expectations by such a wide margin that it can make up for its extraordinarily high valuation.
Microsoft: An AI giant with accelerating growth
Microsoft has two ways it's capitalizing on the growing investment in AI: its cloud-computing platform Azure and its Copilot AI agent built into its enterprise software solutions.
Azure has emerged as the top cloud platform for developers working on AI. That's bolstered by its early investment in OpenAI, which it added $10 billion to in January of 2023. Azure OpenAI usage more than doubled over the past six months, management said during its first-quarter earnings call at the end of October. As a result, it's seen Azure revenue accelerate 33% year over year in the most recent quarter.
Management expects Azure revenue to accelerate more in the second half of fiscal 2025 as many of its capital investments from 2024 will take time to get up and running. It's seeing no shortage of demand for its capacity.
Meanwhile, Microsoft is seeing strong demand for Copilot, which is integrated into Github and Microsoft 365. Github Copilot enterprise customers increased 55% sequentially last quarter, as they use the AI agent to generate code, improve workflow, and find vulnerabilities in their software. Nearly 70% of Fortune 500 companies use Microsoft 365 Copilot, and the number of people using it daily doubled sequentially last quarter. Copilot Studio gives enterprises ways to create agents that work with their data and connect to various pieces of Microsoft's software suite.
Importantly, Microsoft's stronghold in the enterprise-software segment supports the Azure business, as enterprises slowly shift more of their workload to the cloud. Microsoft makes it easy to operate a hybrid cloud environment using Azure, allowing clients to move at their own pace.
At its current price, Microsoft's stock looks attractive. Its enterprise value-to-sales (EV/S) multiple sits at just over 12. When you use analysts' fiscal 2025 estimate, that multiple falls closer to 11. Some may think its 32.5 times forward-earnings multiple is expensive, but when you consider Microsoft is growing from two trends in AI and has a lot of capacity to repurchase its shares, its premium looks far more reasonable. Wall Street certainly thinks so.
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Adam Levy has positions in Microsoft. The Motley Fool has positions in and recommends Jefferies Financial Group, Microsoft, and Palantir Technologies. The Motley Fool 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.
