As the AI revolution is getting entrenched, investors are gravitating to stocks with even the vaguest link to the technology. Those stocks whose valuation looks reasonable are in flavor, given the view that the AI party is just getting started.
Here’s Benzinga’s review of stock performances of Palantir Technologies, Inc. PLTR and C3.ai, Inc. AI, two widely followed AI-levered stocks that have become a hit with retail investors:
PLTR vs. AI: Stock Performance
Palantir and c3.ai have shown an uneven recovery following a lean patch in 2022 this year. The raging popularity of OpenAI’s ChatGPT3 launched in late 2022, software giant Microsoft deepening its ties with OpenAI through an incremental $10 billion investment, and GPU manufacturer Nvidia’s stellar rally amid surging demand for its AI chips got the AI conversation going at the start of the year.
Companies such as Palantir and c3.ai became fringe beneficiaries of the trend. Palantir, a provider of data analytics software solutions to government and corporate customers, has an in-house AI platform named AI. Meanwhile, c3.ai is an enterprise AI application software company.
It has a full suite of AI offerings, including C3 AI Platform, an end-to-end platform for developing and deploying C3 AI applications, and C3 Generative AI.
After a not-so-enterprising recovery seen from the start of the year through early May, the rally in Palantir and c3.ai stocks picked up steam. However, the broader market weakness seen since August has put brakes on the rally, and a rangebound phase has followed.
Figure: Comparison of market price trajectory of PLTR and AI over one year.
Chart Courtesy Of Benzinga
See Also: Best Artificial Intelligence Stocks
PLTR Or AI: Which Offers Better Returns?
Palantir and c3.ai generated positive returns over the past year, thanks to the AI frenzy and the stock market rebound from a dismal 2022. A $1,000 invested in Palantir a year ago would have increased to $2,186.40 now, translating to a return of nearly 119%. The same amount plowed into c3.ai stock would have grown to $2,014.63, yielding a return of 102%.
For the same period, the S&P 500 and the Nasdaq Composite have gained 22% and 31.46%, respectively. Both stocks have outperformed the broader market gauge and the tech-heavy Nasdaq Composite Index, reflecting the premium investors placed on them, banking on their AI opportunity.
Figure: Comparison of scaled returns delivered by PLTR and AI over one year.
Chart Courtesy Of Benzinga
DO NVDA And AMD Often Move Together
Linear regression analysis, which gives the correlation between two variables — in this case, the stock performances of Palantir and c3.AI, throws up a coefficient of determination of 0.72. The number suggests a moderately positive correlation between the stocks.
Figure: Linear regression analysis of PLTR and AI to see if there is a correlation in how the stocks move.
Chart Courtesy Of Benzinga
What Analysts Think Of PLTR And AI?
Sell-side is cautious on both companies, preferring to stay on the sidelines before any compelling reason emerges. The consensus ratings for both the stocks remain “Hold.” While analysts see a nearly 18% downside for Palantir stock over the next year, they root for about 9% upside in c3.ai stock.
Interest in these stocks is fairly high, as evident from the 14 analysts covering Palantir compared to 10 who cover c3.ai.
Chart Courtesy Of Benzinga
Conclusion
The way ahead is tricky for both companies. Palantir has yet to establish its AI credentials, with some analysts rejecting it as a legitimate AI play. That said, some, including Wedbush’s Daniel Ives, sold on its AI potential.
Following Palantir’s AIP conference in September, Ives said, “With a strong product portfolio coupled with AI, we expect PLTR to garner a meaningful share of what we believe to be a $1 trillion AI Global TAM as enterprise and government ecosystems rush to implement useful platforms for automating complex workflows.”
Ives has a $25 price target for Palantir shares and an Outperform rating.
c3.ai is not a buy at current levels, according to Piper Sandler analyst Arvind Ramnani. The company lowered its margin guidance in early September, citing increased spend on Generative AI solutions. Ramnani believes the company will likely expand wallet share with existing clients due to increased AI budgets, tenure with clients, and the potential for accelerating new logo growth.
“While we believe these trends set C3 up well, we would like to see these underlying growth drivers translate to higher levels of revenue growth to get more constructive on the stock,” the analyst said in a note in September.
In premarket trading on Tuesday, Palantir stock fell 0.40% to $17.29, and c3.ai edged down 0.04% to $24.77, according to Benzinga Pro data.
Photo by Spyro the Dragon on Shutterstock
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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