Should You Forget Palantir? This Wide-Moat AI Stock Is a Better Buy

Palantir Technologies (NASDAQ: PLTR) stock has captivated investors, and it's easy to see why. The software stock has emerged as one of the biggest winners of the artificial intelligence (AI) era, thanks in large part to its AI platform (AIP), which combines the power of large language models (LLMs) with its deep data analytics platforms like Gotham and Foundry.

Demand for Palantir's services has soared in the AI era, and its revenue growth has now accelerated for seven quarters in a row, coming in at 39% in the first quarter. At the same time, profits have surged as its operating margin has ramped up. In the first quarter, its operating income jumped 118% to $176 million.

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There's been no shortage of hype around Palantir as well, and that includes CEO Alex Karp, who's prone to using grandiose language to describe the company. In its recent earnings report, he said, "This is a level of surging and ferocious growth that would be spectacular for a company a tenth of our size. At this scale, however, our ascent is, we believe, unparalleled."

Investors have bought into that hype as well, sending the stock up over 900% over the past two years. In fact, Palantir is now the most valuable pure-play software company at a market capitalization of $291 billion, which is ahead of Salesforce -- another software powerhouse -- at $262 billion.

Along with that growth, Palantir's valuation has also soared into the stratosphere as it now trades at a price-to-sales ratio of 98, a valuation that would be considered expensive even if it was a quarter of that level.

For investors impressed with Palantir's prowess in AI but looking for a more affordable alternative, there's one attractive software stock that just popped on its earnings report: Intuit (NASDAQ: INTU), the maker of TurboTax and Quickbooks.

Image source: Getty Images.

Why Intuit is an AI superstar

Because of its software geared toward consumers and small businesses, Intuit has one of the best use cases of AI, as it can leverage that technology to make tax preparation and accounting and bookkeeping easier. The company did just that in its recently reported fiscal third quarter, which is its biggest quarter of the year as it comes during tax season.

CEO Sasan Goodarzi said in the report, "We're redefining what's possible with AI by becoming a one-stop shop of AI-agents and AI-enabled human experts to fuel the success of consumers and small and mid-market businesses."

AI helped drive a number of product improvements in Turbotax with "data-in," or automated data imports covering 90% of customers' most common tax documents, up from 68% last year. AI also assisted Turbotax's human experts, and the time to complete returns was significantly reduced.

In Quickbooks, the company is planning to introduce several end-to-end AI agents, including customer, payments, finance, project management, and accounting agents. AI is also helping drive the company's strong growth, even in a time of macroeconomic uncertainty, and management said that it believes it can continue to expand its already wide operating margin.

In its fiscal third quarter, revenue rose 15% to $7.8 billion, which drove adjusted earnings per share up 18% to $11.65. For the full fiscal year, it raised its guidance on the top and bottom lines, calling for 15% revenue growth and 18% to 19% adjusted EPS growth to $20.07 to $20.12.

Based on that forecast, the stock trades at a price-to-earnings ratio of just 36, which is about 60% lower than Palantir's price-to-sales ratio and only a modest premium to the S&P 500.

Why Intuit's future looks bright

Intuit has two sticky software products, TurboTax and Quickbooks, that keep customers in the ecosystem and can easily benefit from AI advances. Additionally, Credit Karma is taking off, with revenue up 31% in the third quarter, and management raised full-year revenue growth guidance from 5% to 8% to 28%, showing a dramatic acceleration in the business.

The company reported an operating margin of 48% in the third quarter, and future growth should continue to be high margin as the subscription software model benefits from having near-zero marginal costs. Intuit stock hit an all-time high on Friday, but the stock looks poised to hit new heights in the future as it makes AI a bigger part of its arsenal.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intuit, Palantir Technologies, and Salesforce. The Motley Fool has a disclosure policy.