It’s been a tough year in the software space, but one stock that has shined Palantir Technologies(NASDAQ: PLTR ). While many software-as-a-service (SaaS) stocks have seen massive selloffs, Palantir shares have more than doubled over the past year. Meanwhile, the company has been on a roll, reporting 10 straight quarters of accelerating revenue growth.
Palantir cut its teeth as a leading government defense contractor. Its Gotham platform can collect and analyze data from multiple sources and help detect potential threats. The US government remains its largest customer, and the business is growing rapidly. The company continues to win new contracts, and last quarter US government revenue rose 66% year-over-year to $570 million.
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However, Palantir’s biggest growth engine is the US commercial sector, where its revenue rose 137% to $507 million last quarter. The company’s secret sauce is its Foundry Artificial Intelligence Platform (AIP), which collects data and puts it into an ontology, connecting that data to real-world assets and processes from which customers can implement the AI model of their choice. AI models require clean, structured data to avoid misleading information (called hallucinating), so AIP has become the most essential AI operating system of its kind.
While the company is hitting on all cylinders, its stock is expensive, with a forward price-to-sales ratio of 51.5 times and a forward price-to-earnings ratio of 118 times. That makes it hard to buy here, so let’s look at two beaten-down SaaS stocks that could be the best buys.
With a forward P/S ratio of 8 and a forward P/E of 30, service now(NYSE: NOW ) Much less expensive than Palantir. At the same time, it is generating strong revenue growth, with its subscription revenue rising 21% last quarter. At the same time, the stock has increased in SaaS sales, and it has decreased by more than 20% compared to last year.
While ServiceNow has been caught up in the narrative that AI can hurt SaaS businesses, it is one of the most complete enterprise software platforms that is deeply connected to its customers’ data. The company’s platform unifies an organization’s workflow, integrating IT, human resources, and customer service, with years of security permissions, custom business rules, and audit trails built into it. This platform is not only sticky, but also creates a good environment for AI.
ServiceNow is seeing strong growth from AI, with its productivity AI solutions, Now Assist, hitting $600 million in annual contract value (ACV) and on pace to grow to $1 billion by year-end. Meanwhile, it is looking at an orchestration platform for agentic AI with its Control Tower platform. Given its sticky platform and strong AI growth opportunities, ServiceNow is one of the best SaaS stocks to own.
Like the service now, Sales force(NYSE: CRM ) The stock also caught on in SaaS sales. The stock is down more than 25% over the past year, which reduces Salesforce’s valuation to less than 4 times forward P/S multiples and 15 times forward P/E.
Salesforce’s platform is also tightly tied to its customer data, and the acquisition of master data management company Informatica and the launch of Data 360, which can pull data from cloud computing and data warehouse providers, help position it as the master of customer records. As discussed with Palantir, AI requires clean, structured data, so Salesforce is again using its platform as a launchpad to become the leader in agent AI through the AgentForce platform. It is already seeing strong growth in this region with its agent force annual recurring revenue (ARR) rising 169% to $800 million last quarter.
Overall, Salesforce is growing its revenue in the low double digits and projects compound annual growth of more than 10% through fiscal 2030. This is called GARP (Growth at a Reasonable Price).
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Jeffrey Seiler has held positions at Salesforce and ServiceNow. The Motley Fool has and recommends positions in Palantir Technologies, Salesforce, and ServiceNow. Motley Fool has a disclosure policy.
Should You Forget Palantir and Buy These 2 Tech Stocks Instead? Originally published by Motley Fool
