Better AI Stock: SpaceX or Palantir?

Artificial intelligence (AI) investing is the most popular theme in the stock market right now. It's easy to understand why: Several companies are growing at incredible paces and could wind up being some of the major tech players of the future. Given how big a market opportunity AI has, there are several stocks that look like exciting investments investors should be buying right now.

Two of the most popular AI investments are Palantir (NASDAQ: PLTR) and Space Exploration Technologies (NASDAQ: SPCX). While SpaceX may not seem like a full-on AI investment, it acquired xAI, the maker of Grok, prior to its IPO, making it a major player in the AI arms race.

So, which of these two makes for the better buy? Let's find out.

Image source: Getty Images.

These two aren't necessarily competing against each other

Palantir and SpaceX are tackling similar but different segments of the AI market. Palantir's original product offering was suited for government use and found widespread adoption across many branches of government, both foreign and domestic. Eventually, its software was rolled out to the commercial sector, where it has likewise seen widespread adoption. Palantir's software is essentially a data analytics platform that utilizes AI to make sense of what it sees. It offers suggestions for the next action and either performs it itself or asks for human confirmation. Palantir's software works with pre-existing systems and can be successfully deployed in many different applications.

xAI from SpaceX is different. xAI has a family of large language models that can be deployed in many applications. But more importantly, applications can be built around its capabilities and utilized for different purposes.

Fundamentally, these are two different businesses. Palantir sells a ready-to-deploy software package, while xAI provides the building blocks for users to create their own or interact directly with it. These are both valid applications and have a massive market opportunity, but which one makes for the best investment opportunity?

Both stocks are expensive, but growing quickly

Last quarter, xAI's revenue grew by an impressive 213% year over year. However, SpaceX as a whole grew at a 92% pace -- still impressive, but slower.

Palantir's growth rate is right around SpaceX's total, increasing at a 93% year-over-year pace.

But SpaceX's AI division is growing at a quicker rate. Next year, Wall Street analysts estimate SpaceX's overall revenue will grow at a 153% year-over-year pace, with xAI likely leading the way. Wall Street expects Palantir to grow at a 50% rate next year, but it has downgraded Palantir's growth rate significantly over the past few years, so I'd take this projection with a grain of salt. However, I'd be surprised if SpaceX isn't growing faster than Palantir next year.

As for valuation, SpaceX currently trades for about 44 times this year's sales estimates. Palantir trades for 55 times this year's estimates.

PLTR PS Ratio (Forward) data by YCharts

Typically, a 20-times sales valuation is considered expensive, with 40 times sales being extremely expensive. That shows investors just how highly the market values these two stocks, and how high expectations are baked into them. As a result, investors must exercise some level of caution with these two, as there is a valuation risk associated with both stocks.

But which is the better buy? I think it's SpaceX. xAI's large language model approach will have more adoption than Palantir's turnkey AI solutions in the future, and that will drive further growth. With the company likely to grow at a faster pace and priced at a cheaper entry point, I think that also points to it being the better stock pick.

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