It’s been a tough year in the software space, but one stock that has shone is Palantir Technologies(NASDAQ: PLTR). While most software-as-a-service (SaaS) stocks have seen steep sell-offs, Palantir shares have doubled in value over the past year. Meanwhile, the company has been on a tear, with it reporting 10 straight quarters of accelerating revenue growth.
Palantir cut its teeth as a leading government defense contractor; its Gotham platform can gather and analyze data from a large array of sources and help unearth prospective threats. The U.S. government remains its largest customer, and this business continues to grow at a brisk pace. The company continues to win new contracts, and last quarter saw its U.S. government revenue climb 66% year over year to $570 million.
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However, Palantir’s biggest growth engine has been the U.S. commercial sector, where its revenue surged 137% last quarter to $507 million. The company’s secret sauce is its Foundry Artificial Intelligence Platform (AIP), which gathers data and puts it into an ontology, linking that data to real-world assets and processes from which customers can then apply the AI model of their choice. AI models need clean, structured data to avoid giving wrong information (called hallucinating), so AIP has become a much-needed AI operating system of sorts.
While the company is hitting on all cylinders, its stock is very expensive, trading at a forward price-to-sales multiple of 51.5 times and a forward price-to-earnings ratio of 118 times. That makes it hard to buy up here, so let’s look at two beaten-down SaaS stocks that could be better buys.
With a forward P/S ratio of 8 and a forward P/E of 30, ServiceNow(NYSE: NOW) is considerably less expensive than Palantir. At the same time, it is generating strong revenue growth, with its subscription revenue climbing 21% last quarter. Meanwhile, the stock has been swept up in the SaaS sell-off, and it’s trading down more than 20% over the past year.
While ServiceNow has been caught up in the narrative that AI could hurt SaaS businesses, it is one of the most integral enterprise software platforms out there that is deeply intertwined with its customers’ data. The company’s platform unites an organization’s workflow, combining information technology, human resources, and customer service, with years of security permissions, customized business rules, and audit trails built in. That makes its platform not only sticky, but also a great environment for AI.
ServiceNow is seeing strong growth from AI, with its generative AI suite of solutions, Now Assist, hitting $600 million annual contract value (ACV) and on pace to grow to over $1 billion by year-end. Meanwhile, it’s looking to become an orchestration platform for agentic AI with its Control Tower platform. Given its sticky platform and strong AI growth opportunities, ServiceNow is a top SaaS stock to own.
Like ServiceNow, Salesforce(NYSE: CRM) stock has also gotten caught up in the SaaS selling. The stock is down more than 25% over the past year, which has brought down Salesforce’s valuation to a forward P/S multiple of less than 4 times and a forward P/E of 15 times.
Salesforce’s platform is also tightly interwoven with its customer data, and its acquisition of master data management company Informatica and the launch of Data 360, which can also pull in data from cloud computing and data warehousing providers, helps position it as its customers’ master of records. As discussed with Palantir, AI needs clean, structured data, so Salesforce is then using its platform as the launch pad to become an agentic AI leader through its AgentForce platform. It’s already seeing strong growth in this area with its AgentForce’s annual recurring revenue (ARR) soaring 169% to $800 million last quarter.
Overall, Salesforce is growing its revenue in the low double digits and is projecting more than 10% compound annual growth through fiscal 2030. That makes the stock a great GARP (growth at a reasonable price) name to own.
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Geoffrey Seiler has positions in Salesforce and ServiceNow. The Motley Fool has positions in and recommends Palantir Technologies, Salesforce, and ServiceNow. The Motley Fool has a disclosure policy.
