The Motley Foolยท2025-07-29 08:48Core Viewpoint - Palantir Technologies has significantly outperformed Alibaba Group Holding in stock price since its IPO, but future growth potential raises questions about which AI stock is the better investment going forward [1][2]. Financials - Palantir's return on equity stands at 12.36%, slightly higher than Alibaba's 11.44% [4]. - Alibaba generated over $996 billion in revenue with earnings of approximately $129.5 billion in the last 12 months, while Palantir reported revenue of $3.12 billion and earnings of nearly $571 million [5]. - Palantir has a higher profit margin of 18.3% compared to Alibaba's 13.1% [5]. - Alibaba's cash position is $428 billion, significantly larger than Palantir's $5.4 billion, but Alibaba also carries more debt at $248 billion compared to Palantir's $244.6 million [6]. - Palantir's debt-to-equity ratio is 4.4%, more favorable than Alibaba's 22.8% [6]. Growth - Alibaba's revenue grew by 7% year over year to nearly $32.6 billion, with adjusted earnings increasing 22% to $4.1 billion [7]. - Palantir's revenue surged 39% year over year in Q1 2025 to $883.9 million, with GAAP earnings more than doubling to $217.7 million [8]. - Alibaba's AI-related product revenue has seen triple-digit growth for seven consecutive quarters, indicating strong long-term growth prospects [9]. - Palantir continues to secure new contracts in both government and private sectors, driven by the demand for large language models [10]. Valuation - Palantir's forward price-to-earnings ratio is nearly 278, while Alibaba's is much lower at 14 [10]. - Analysts suggest that Palantir's price-to-earnings-to-growth (PEG) ratio is 4.9, compared to Alibaba's 1.09, indicating that Alibaba may be more attractive based on growth expectations [11]. - Alibaba's price-to-sales ratio is 2.08, significantly lower than Palantir's 126.9, and its enterprise-value-to-EBITDA is 9.02 compared to Palantir's 848.9 [12]. Market Outlook - A Wedbush analyst predicts Palantir's market cap could reach $1 trillion within two to three years, currently hovering around $370 billion [13]. - Concerns exist regarding whether Palantir's growth can justify its premium valuation, as current growth rates may not be sufficient [14]. - Alibaba remains a dominant player in the Chinese cloud services and e-commerce markets, with plans to launch AI glasses, positioning it as a potentially better investment compared to Palantir [15].