Palantir Trades at 42 Times Forward Sales. ServiceNow Trades at 6 Times Forward Sales. One of These Is the Obvious Buy.

Numbers are important when investing. We're all working toward building our nest eggs to achieve comfortable retirements or put other important financial goals within reach. And numbers -- such as your rate of return on investment and the total amount of money you have socked away -- are the clearest gauge of how you're doing.

But here's the part that not everyone says out loud: Sometimes, the raw numbers don't tell the whole story. Take, as an example, the valuations of two software companies that are embracing artificial intelligence -- Palantir Technologies (NASDAQ: PLTR) and ServiceNow (NYSE: NOW). Palantir's software helps businesses and government agencies (including the military) achieve broad goals, while ServiceNow uses AI to help its customers manage human resources and customer service, and coordinate business processes.

ServiceNow trades at a forward price-to-sales ratio of 6, meaning the stock's market capitalization is 6 times the revenue investors expect the company to earn in the coming year. Palantir, meanwhile, trades at a much frothier forward P/S of 42.

So, based on those numbers, you would think that ServiceNow would be the better investment, right? That conclusion couldn't be further from the truth.

Image source: The Motley Fool.

About Palantir stock

First, let's take a look at Palantir. It's an important government contractor, providing platforms that can collect countless data points across a wide array of systems, and help find patterns in them. Palantir leverages its broad reach and AI-enabled decision-making to deliver real-time analytics and actionable insights to intelligence agencies and military commanders.

The Pentagon is requesting $2.3 billion to expand its use of Palantir's Maven Smart System, an AI-powered platform that supports AI-enabled targeting and analyzes battlefield data. And it is planning to label Maven an "official program of record," which will streamline its use over all branches of the military and secure long-term funding for Palantir.

But there are many other uses for Palantir in government work. Its platform was also used by the now-defunct Department of Government Efficiency (DOGE) and is being used by Immigration and Customs Enforcement, the State Department, Homeland Security, and the Internal Revenue Service. Palantir's revenue from U.S. government contracts was $687 million in the first quarter, up 84% from a year earlier.

And its commercial business is growing even faster. Palantir's platform helps companies manage workflows, inventory, and supply chains, and provides competitive analysis. The company's U.S. commercial revenue was $595 million in the first quarter, up a whopping 133% from a year earlier. In the quarter, Palantir reported closing 206 deals worth more than $1 million, of which 47 were valued at more than $10 million.

Palantir guided for Q2 revenue to be in the range of $1.797 billion to $1.801 billion, and raised its full-year guidance from a range of $7.182 billion to $7.198 billion to a range of $7.650 billion to $7.662 billion.

I doubt that it will be the last time Palantir boosts its guidance in 2026.

A look at ServiceNow

ServiceNow is a software-as-a-service (SaaS) company for IT service management, customer service, and human resources. The company's AI platform is designed to be an all-in-one solution that can gather data, analyze, provide AI-powered solutions, and act on those decisions.

It's also expanding its reach. Late last year, it completed its acquisition of MoveWorks, which offers an agentic AI platform that uses large language models to allow users to find information and automate tasks in their business systems. It also bought Veza, a cybersecurity company that specializes in identity security, and it purchased Pyramid Analytics to expand its AI and natural language capabilities.

Revenue in the first quarter was $3.77 billion, up 22% from the prior-year period. Net income was $469 million, or $0.45 per share. However, subscription revenue growth slowed in the quarter as several deals the company expected to close with clients in the Middle East were delayed due to ongoing military conflicts.

The company issued second-quarter guidance calling for 22.5% year-over-year growth in subscription revenue, to a range of $3.815 billion to $3.820 billion.

Why Palantir is worth the premium

Both companies are on the rise, to be sure. And I don't expect the global headwinds affecting ServiceNow to be a long-term problem. But ServiceNow's growth cannot compare to the massive opportunity Palantir has in front of it. This company is closing million-dollar deals every day, on average, and closed $4.262 billion in total contract value in the first quarter, up 138% from a year prior.

Look at it this way. Palantir's $4.47 billion in 2025 sales was a 56% increase from 2024 -- huge growth. And its revenue growth is expected to accelerate this year to 72%, after which the top line is forecast to rise by another 44% in 2027 to $11.17 billion.

ServiceNow is a fine company in its own right, with 21% revenue growth in 2025 to $13.28 billion. But while Palantir is soaring, ServiceNow is expected to clock just 22% revenue growth this year and 18.4% growth in 2027 to a total of $19.19 billion.

That's why Palantir stock is worth the hefty premium, in my view. It remains a core holding in my portfolio, and that's not going to change any time soon.

Patrick Sanders has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies and ServiceNow. The Motley Fool has a disclosure policy.