This year is proving particularly profitable for stock market investors. The index S&P 500 has delivered an impressive 26% return so far in 2024, supported by strong macroeconomic conditions, record corporate profits and growing optimism about the transformative potential of artificial intelligence (AI) across various sectors of the economy.
Palantir Technologies (PLTR 1.56%) et International Business Machines (IBM 0.22%) are leaders in the technology sector, benefiting from strong demand for innovative AI applications that have propelled both stocks to all-time highs. Can we expect this dynamic to continue in 2025?
Let’s explore whether Palantir or IBM is the better investment right now.
Source de l’image : Getty Images.
The strengths of Palantir
Palantir Technologies has quickly established itself as one of the hottest high-growth stocks on the market, up 288% year to date. The company has succeeded by leveraging AI and big data analytics for business applications beyond its traditional government-focused sector.
Palantir’s Artificial Intelligence Platform (AIP) combines data management tools with predictive and actionable analytics for organizations across diverse industries. The ability to automate tasks and create custom workflows that improve productivity has seen great success.
In the third quarter (for the period ending September 30), Palantir’s total revenue increased 30% year-over-year, with growth in its U.S. business segment even reaching 54%. This expansion translated into significantly increased profit, with net profit more than doubling compared to last year. Company management is optimistic that these trends will continue through 2025 and beyond.
Ultimately, the best reason to invest in Palantir stock remains its exceptional growth prospects, unparalleled at its scale in the field of enterprise AI applications. Investors convinced that the company is still at the beginning of a long-term global opportunity might consider incorporating these stocks into a diversified portfolio.
IBM’s strengths
If Palantir is the rising tech star in 2024, IBM stands out for its stability, with its shares up 37% since the start of the year. IBM’s attractiveness as an investment lies in its diversified technological profile. The company has shifted its business focus from hardware infrastructure to AI-powered hybrid cloud solutions across several software offerings. In this context, IBM’s Watsonx.ai platform has been a growth engine, helping large organizations integrate generative AI and machine learning into their operational processes.
The news is encouraging: In the third quarter (for the period ending September 30), revenue in IBM’s software segment grew 10% year-over-year, with management noting that its generative AI portfolio had grown by $1 billion compared to the previous quarter. To put that into perspective, that’s more than the $726 million in total revenue Palantir made during the same period.
However, given IBM’s much larger size, it takes longer to move the entire company forward. Overall revenue for the third quarter increased only 1% from a year earlier, due to continued weakness in the legacy infrastructure segment. Adjusted earnings per share (EPS) grew modestly, at just 5% compared to the third quarter of 2023.
So while IBM doesn’t display the explosive momentum of Palantir, its biggest draw for investors is its attractive valuation. Based on analyst estimates, IBM shares trade at 22 times consensus EPS for the year, representing a significant discount from IBM’s sky-high price-to-pre-tax earnings (P/E) ratios. Palantir, which reach 176.
IBM PE Ratio Data (Forecast) by YCharts
In this case, the market has priced Palantir stock at an extreme valuation level, incorporating many positive aspects of their prospects. This dynamic does not necessarily imply a decline in stocks, but brings a dimension of risk that investors must evaluate in the face of high expectations. Conversely, IBM is generating steady growth thanks to a more mature global footprint.
For investors looking for a bargain in the artificial intelligence sector, IBM presents itself as a solid choice, thanks to more modest valuation multiples and a regular quarterly dividend yielding 3%.
Time to make a decision: My opinion leans in favor of IBM
Despite impressive trends for Palantir Technologies, the stock price seems too high for thoughtful investment to me, following its huge rally. IBM is likely the best choice for the majority of investors seeking exposure to operational AI and machine learning applications, offering a blend of value and strong fundamentals. In my view, IBM stocks within a diversified portfolio should continue to reward shareholders.
I believe that the rapid evolution of artificial intelligence technologies is transforming the economic landscape in unprecedented ways. Companies that adopt these innovations face a double challenge: the need to invest in cutting-edge solutions while managing the balance between their valuation and their growth potential. This dilemma highlights the importance of in-depth analysis and a long-term perspective when choosing investments. The distinction between companies like Palantir and IBM isn’t just about rapid growth or stability; it evokes a pressing need for investors to arm themselves with discernment, anticipation and an informed vision, to navigate a constantly evolving market.
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