The AI Investment Dilemma: Palantir vs. Super Micro Computer
As the artificial intelligence (AI) boom continues to sweep the tech industry, investors are clamoring to get in on the action. Two stocks that have caught their attention are Palantir (NYSE: PLTR) and Super Micro Computer (NASDAQ: SMCI), both of which have seen their stock prices soar in recent months. But which one is the better investment?
Palantir: A Software Powerhouse
Palantir makes analytical software for large businesses and government agencies, including the US military and intelligence agencies. Its decision to work with the government has paid off handsomely, with sales growing 27% year over year to $678 million last quarter. The company’s analytics and AI platform is also gaining traction in the private sector, with US commercial revenue jumping 55% to $159 million.
As a software company, Palantir boasts impressive gross margins above 80%, enabling it to expand its operating margin to 12% over the past 12 months and 16% last quarter. However, its stock has risen 372% since going public in 2021, leaving it with a record-high price-to-sales ratio (P/S) of 43.
Super Micro Computer: A High-Growth, Low-Margin Play
Super Micro Computer, on the other hand, is a builder of data centers for AI and cloud providers. The company’s revenue has grown an astonishing 143% year over year to $5.3 billion, driven by high demand from customers. However, as a reseller of computing products, Super Micro Computer’s revenue comes with low gross margins, which stood at just 14.3% over the past 12 months.
Furthermore, the company is facing allegations of circular accounting methods, self-dealing, and undisclosed related party transactions, which have led to its auditor’s resignation and a collapse in its stock price. As a result, Super Micro Computer’s price-to-earnings ratio (P/E) has fallen to 13, making it a seemingly more affordable option.
A Difficult Decision
So, which stock is the better buy? Unfortunately, both Palantir and Super Micro Computer come with significant concerns. Palantir’s valuation is nosebleed-high, while Super Micro Computer’s accounting practices are under scrutiny.
Perhaps the best approach is to avoid both stocks altogether. With thousands of other options available, investors can opt for companies with more reasonable valuations and cleaner financial records. After all, it’s always better to err on the side of caution when it comes to investing.
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