Meet the AI Software Stock That’s Crushing Palantir (Hint: It’s Significantly Cheaper)

Artificial intelligence (AI) software demand is increasing at a healthy clip, which isn't surprising considering the productivity gains this technology can deliver.

A recent survey by McKinsey revealed that 80% of respondents who use AI report higher productivity, while 50% report better decision-making. Not surprisingly, the generative AI tools offered by Palantir Technologies (NASDAQ:PLTR) are in high demand, as evidenced by the company's phenomenal growth.

Palantir is one of the pioneers in AI software. The productivity gains delivered by its Artificial Intelligence Platform (AIP) are driving solid revenue and earnings growth for Palantir by helping it land bigger deals and more customers. However, Palantir stock is expensively valued, and that's one of the reasons it has lost over 4% of its value in 2026.

But the same isn't true for Snowflake (NYSE:SNOW), another AI software company whose stock price has jumped 53% this year. Let's see why that has been the case and check whether it is too late to buy this AI software specialist.

Image source: The Motley Fool.

AI tools are powering Snowflake's growth

Snowflake is a data cloud platform provider that enables customers to store, share, and analyze data in a secure environment. However, the company has been helping its customers do more with their data by integrating AI tools across its data cloud platform.

For instance, Snowflake customers are now using its AI products to build and deploy AI agents, write code, and boost employee productivity through personalized agents. Even better, Snowflake's AI tools are helping it attract more customers. It added 692 net new customers in the second quarter of fiscal 2027 (which ended July 31), a 32% increase over the prior year. The company finished fiscal Q2 with just over 14,500 customers.

A large share of these customers use Snowflake's AI products. For instance, the CoWork personal agent tool is now being used by 5,800 customer accounts. Meanwhile, the Snowflake CoCo AI coding agent is now being used by more than 9,100 customer accounts. The company notes that more than 2,000 accounts started using CoCo in the previous quarter.

The strong adoption of Snowflake's AI offerings explains why the company posted 35% year-over-year revenue growth last quarter to $1.55 billion. Importantly, Snowflake's earnings per share grew at a much faster pace of 77% year over year to $0.62, easily beating the consensus estimate of $0.45. The stronger growth in Snowflake's earnings isn't surprising, as existing customers are spending more money on its services.

This is evident in the company's net revenue retention rate of 126% last quarter, a slight improvement over the year-ago period. This metric compares product revenue from Snowflake's customers at the end of a period to that from the same customer cohort in the year-ago period. A reading above 100% suggests that existing customers are now using more of its offerings, leading to improved bottom-line growth.

Even better, Snowflake has increased its full-year product revenue guidance to $6.07 billion from the earlier estimate of $5.84 billion. The updated guidance points to a 36% year-over-year increase in product revenue, well above the consensus estimate of $5.86 billion. So, it is easy to see why Snowflake stock surged over 16% following the release of its quarterly results on Sept. 2.

The good part is that Snowflake can sustain its solid growth in the future. After all, the company's remaining performance obligations increased by 30% year over year in the previous quarter to $9 billion. This is the total value of contracts yet to be fulfilled by the company, and the size of this metric suggests that Snowflake's healthy revenue and earnings growth will continue.

Here's why the stock is built for more upside

Analysts are estimating a 77% increase in Snowflake's earnings per share in fiscal 2027 to $2.22. The following chart tells us that Snowflake can sustain strong growth over the next couple of years.

SNOW EPS Estimates for Current Fiscal Year data by YCharts

However, I won't be surprised if it outperforms consensus expectations, given its impressive backlog and the secular growth opportunity in the AI software market. Additionally, Snowflake is significantly cheaper than Palantir, with a sales multiple of 21. Palantir, meanwhile, trades at 71 times sales.

Snowflake's relatively lower valuation is a key reason this AI stock could continue to outperform Palantir. So, investors looking to capitalize on the growing adoption of AI software products by enterprises would do well to take a closer look at Snowflake before it surges higher.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies and Snowflake. The Motley Fool has a disclosure policy.