Is artificial intelligence (AI) all hype? After a lackluster few weeks for AI stocks, some investors are asking that question -- and getting nervous.
This week, three Motley Fool contributors examine Palantir Technologies (PLTR +0.46%), Snowflake (SNOW +2.92%), and Nvidia (NVDA +0.69%) to explain why they think these stocks are down from recent highs -- but are far from out.
Image source: Getty Images.
Palantir stock is getting a much-needed breather
Justin Pope (Palantir Technologies): Investors heard the buzz around AI a lot over the past year, and there are signs that Palantir's Artificial Intelligence Platform (AIP) is worthy of the buzz.
The signs are showing up in government, where Palantir continues winning contracts. It recently was awarded a $9.8 million contract from the U.S. Defense Information Systems Agency and a $178 million contract from the Army.
They also show up in the private sector, where Palantir's customer growth is accelerating. Its U.S. commercial customer count grew 55% year over year in the fourth quarter, and 22% quarter over quarter. That's up from 37% year over year growth in the third quarter.
And there are positive signs in the corporate space, where Palantir just announced a partnership with Oracle to distribute Palantir's AI technology on its cloud platform.
You can feel pretty good about the platform's quality and impact when it's in demand by so many different parties. There is still so much long-term room for growth, too. Palantir still has only about 500 customers, a tiny slice of the broader enterprise market.
NASDAQ: PLTR
Key Data Points
Technology stocks have fallen recently due to the market's realization that interest rates could remain higher for longer than anticipated. That has cooled off Palantir stock from the high $20s to the low $20s, a breather that investors should welcome as a buying opportunity.
Analysts believe the company's earnings will have a compound annual growth rate of 26% over the next three to five years, a small sample of what could be decades of double-digit growth.
This data cloud stock is unlikely to stay frozen out for long
Will Healy (Snowflake): Snowflake emerged as an increasingly essential data cloud platform. Data clouds allow enterprises to store, secure, and manage data from one central location.
NYSE: SNOW
Key Data Points
Snowflake has a competitive advantage because it can work with different cloud providers. This has prompted competitors like Amazon to sometimes market it over their own data cloud products.
Such an approach brought Snowflake more than 9,400 customers as of the end of fiscal 2024 (ended Jan. 31), 22% more than the previous fiscal year. Of those, 461 spent over $1 million yearly on the platform, a cohort that grew 39% over the same period.
Moreover, it earns revenue based on usage. This allows it to gain increasing amounts of revenue from current customers. This business model likely helped attract interest before its initial public offering (IPO) from Warren Buffett's team at Berkshire Hathaway.
However, the stock fell in recent weeks. A 22% revenue growth forecast in fiscal 2025, lower than in previous years, probably did not help, but the most impactful reason was probably the sudden retirement of CEO Frank Slootman, who led the company through its IPO in 2020 and in the years since.
Moreover, the new CEO, Sridhar Ramaswamy, came to Snowflake only last year via the Neeva acquisition, a search company Ramaswamy founded. This might make the direction of the company more uncertain.
Nonetheless, the lower revenue forecast and Ramaswamy's technology background might set him up to exceed expectations later. Also, investors should remember that the company is still growing rapidly. Its $2.8 billion in revenue for fiscal 2024 rose 36% over the last year.
Furthermore, adjusted free cash flow came in at $810 million for fiscal 2024. That is 56% higher than the previous year and reduces the negative impact of an $836 million net loss mostly brought about by rising stock-based compensation costs, a non-cash expense.
Lastly, the dramatic drop in the stock price has taken the price-to-sales (P/S) ratio below 18, the lowest level in the stock's history. Such levels are more likely to prompt buying in Snowflake stock as more companies seek an inter-operable data cloud product.
Nvidia is still firing on all cylinders
Jake Lerch (Nvidia): Undoubtedly, Nvidia led the charge as AI stocks soared. Over the last 18 months, its shares are up over 436%, meaning a $10,000 investment in November 2022 would be worth $53,600 today.
NASDAQ: NVDA
Key Data Points
Yet the last month has been a different story. Shares are stuck in neutral, and it has investors asking whether the Nvidia bull is asleep -- or altogether dead.
I think there's plenty of life left in the bull. First, the AI revolution is still in the early stages. Just this past week, chipmaker Taiwan Semiconductor Manufacturing raised forward guidance based on "insatiable demand" for AI chips. That's not the sort of comment that implies demand is slowing, and it's more proof that organizations are continuing to scale up their AI spending.
And second, Nvidia's new AI chips are coming. In March, the company announced a new generation of AI chips, known as Blackwell or GB200. These chips are an upgrade to the Hopper generation of AI chips, which are already some of the most sought-after on the market. The first Blackwell chips won't ship until later in the year, but when they do, they should deliver a further boost to Nvidia's already impressive sales figures.
In short, overall demand for Nvidia's AI products and chips remains high. At the same time, the company is rolling out a new and improved GB200, which should help drive revenue and profits even higher. So long-term investors should stay the course -- the future still looks bright.
