Better AI Software Stock: Palantir vs. ServiceNow

While AI stocks have generally been hugely successful for shareholders, not every artificial intelligence (AI) company is riding high right now. ServiceNow (NYSE: NOW) stock is trading down 51% from recent highs, and Palantir Technologies (NASDAQ: PLTR) has slid 18% over the past 12 months.

With these declines, some investors are likely wondering which AI stock is the better one to buy right now. Here's what investors should know.

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The case for Palantir

Despite Palantir's significant share price declines this year, the company reported some impressive results in its first quarter (which ended March 31). Palantir's sales increased 85% to $1.6 billion, and adjusted non-GAAP (adjusted) earnings spiked 154% to $0.33 per share. Both results easily outpaced Wall Street's consensus estimates.

Palantir also reported that its total contract value is now $2.4 billion, up 61% from the year-ago quarter, and that it signed 72 deals worth at least $5 million and 47 deals of at least $10 million.

Palantir is benefiting from an increasing need among companies and the government to use AI-infused software to make sense of large datasets, and the company expects continued growth. Management raised its 2026 revenue guidance to about $7.6 billion, representing 71% year-over-year growth from 2025.

The case for ServiceNow

Some investors have feared that AI will replace ServiceNow's core capabilities, including workflow management and automation. Still, the company's recently reported second-quarter results prove that some of those fears are exaggerated.

ServiceNow's revenue rose 24% in the second quarter (which ended June 30) to nearly $4 billion, outpacing Wall Street's consensus estimate of about $3.9 billion. The company's adjusted non-GAAP earnings of $0.90 per share also beat consensus estimates of $0.86 per share and were up 11% from the year-ago quarter.

Growth from the company's closely watched current remaining performance obligations (cRPO), which are contracts that will be recognized as revenue in the next 12 months, rose 21% to $13.2 billion. What's more, the company had 123 transactions with contract values exceeding $1 million, up 40% from the year-ago quarter.

Despite investor fears that AI will replace ServiceNow, the company's management believes that greater AI adoption will drive additional growth, as companies will need ServiceNow's features to manage their AI. Following its second-quarter result release, CEO Bill McDermott told CNBC, "There's going to be more AI. There are going to be more incidents, and all these things drive increasing volume to ServiceNow."

McDermott added that the company raised its full-year guidance -- which calls for subscription revenue to rise more than 23% to over $15.8 billion -- due to growing business volume driven by AI.

Verdict: ServiceNow is the better AI software stock

While Palantir's sales are expanding rapidly and the company continues to add significant deals, its shares just look far too expensive compared to ServiceNow.

Palantir has a price-to-earnings (P/E) ratio of about 140 right now, compared to ServiceNow's 60. For reference, the average P/E ratio for the tech sector is currently 41.

ServiceNow's recently reported second-quarter results show that customers continue to choose the company's automated services, despite fears of AI disruption. That doesn't mean ServiceNow isn't without its risks, but with its shares significantly cheaper than Palantir's, it looks like the better AI software stock right now.

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies and ServiceNow. The Motley Fool has a disclosure policy.