Businesses and governments are generating more data than ever, and software companies like Palantir (PLTR -3.72%) and Oracle (ORCL -1.58%) can help them make the most of it. But effective data utilization today relies on a key ingredient -- artificial intelligence -- and both companies stand to gain from the increasing demand for AI services.
Both companies have already seen the impact of the growth in AI spending on their stock prices. Palantir shares are up 369% this year as of this writing. Oracle shares are up a respectable 61% in 2024 so far.
Despite the strong financial outlook for both companies, Wall Street analysts only expect one of these AI-driven companies to keep climbing higher in 2025.
- Palantir has a median price target of $45 per share, based on the estimates of 22 analysts. That implies a downside of 44% from its share price, as of this writing.
- Oracle has a median price target of $197 per share, based on the estimates of 38 analysts. That implies upside of 16% from its share price, as of this writing.
Here's what investors need to know.
Image source: Getty Images.
Palantir: A strong business with an incredibly expensive stock
Palantir's software gives government and commercial clients the ability to glean usable insights and develop operating efficiencies from big data. The company initially built a customer base among government agencies, but it extended the framework to commercial-enterprise customers over time.
Those commercial customers are growing quickly, up 51% year over year in the third quarter. Growth is particularly strong in the U.S., where it grew its customer count 77% and U.S. commercial revenue by 54%. Overall, revenue grew 30% last quarter.
Palantir is also showing considerable operating leverage. Adjusted operating margin expanded to 38% from 29% in the third quarter last year. As Palantir scaled the business over the past year, it became GAAP profitable, gaining it a spot in the S&P 500 index.
Palantir's core offerings are Gotham and Foundry, which serve government and commercial clients, respectively. But the release of its artificial intelligence platform, AIP, has been an accelerator for customer adoption over the last year-and-a-half, particularly in the U.S. CEO Alex Karp has focused more on product innovation than sales and marketing as a means to attract new customers, and the adoption of AIP is a clear indication of the strategy's success.
With relatively low operational expenses and strong continued demand, Palantir should show great financial results over the next few years. The problem with the stock, however, is the price. Shares currently trade for an enterprise value-to-revenue multiple of 62. Even with strong sales growth expectations, the company's enterprise value is still 48 times analysts' revenue expectations for 2025. It also trades for over 150 times forward earnings estimates. Despite the strength of the business, it doesn't justify a price anywhere near that level.
Oracle: A burgeoning cloud computing business fueled by AI
Oracle has a long history of providing leading database applications to help businesses store and use their data effectively. More recently, though, its cloud computing segment, specifically Oracle Cloud Infrastructure, or OCI, has been the driving force behind its results.
Oracle is rapidly growing its compute capacity, and there's clear demand for it. OCI revenue increased 52% in the most recent quarter. That's an acceleration from each of the last two quarters. Meanwhile, its backlog increased 50% to a whopping $97 billion. That should enable the accelerating growth to continue. Management expects Oracle's total cloud services revenue to top $25 billion for fiscal 2025 (ending in May), up from $19.8 billion in 2024.
Artificial intelligence spending is the main factor pushing Oracle's cloud revenue higher. GPU consumption was up 336% in the quarter. Oracle has signed several high-profile agreements with AI companies, including OpenAI and, most recently, Meta Platforms. Oracle will collaborate with Meta to develop new AI agents supporting industries ranging from healthcare to finance based on Meta's Llama model. That could drive further increases in OCI demand.
With the rapid growth of OCI revenue, Oracle is finally seeing some relief from the pressure the buildout put on its financial results. Operating margin dropped precipitously from 2021 through mid-2023. But profitability has improved as OCI scales, resulting in an operating margin of 30% in the most recent quarter. That number should continue to climb back toward historic levels in the mid-30% range.
Additionally, Oracle's rapid buildout of OCI puts it in a stronger position to retain enterprise customers for its database applications. It built its infrastructure with a focus on migrating enterprise applications to the cloud. As it increases the percentage of customers using its latest software, it should see strong retention there as well.
Shares of Oracle trade for about 27.5 times forward earnings as of this writing. If the stock reached the analysts' median price target of $197 within a year, it would trade for approximately 32 times trailing earnings, or about 30 times analysts' current estimates for fiscal 2026. With AI spending supporting steady revenue growth and strong margin expansion, that would be a fair price to pay. As such, investors could realistically see the stock climb 24% over the next year, as the median price target suggests.
