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Nvidia (NASDAQ: NVDA) and Palantir (NASDAQ: PLTR) are probably the two most popular artificial intelligence (AI) stocks today. And for good reason – both are at the heart of the AI revolution and generating prolific growth.
Over the next 12 months, however, I see more potential in another AI stock. Here’s why I reckon it will outperform these shares over this timeframe.
A top AI stock
The stock I want to highlight today is Snowflake (NYSE: SNOW). It helps organisations store and structure their data and then apply AI solutions to it.
This company came to the market back in 2020. Currently, it’s trading well above its Initial Public Offering (IPO) price, but well below its all-time highs.
Investors are discovering Snowflake
There are four main reasons I believe Snowflake can outperform the other two stocks over the next year. The first is that the market is just waking up to the fact that this company is a key AI player.
We can see this in the share price. While shares in Nvidia and Palantir have been charging higher for years, this stock has only started to move higher in the last nine months or so.
Why are investors suddenly realising it’s a major AI play? Product revenue growth.
Last quarter (ended 31 July), product revenue came in at $1.09bn, up 32% year on year. That level of growth was up from 26% the previous quarter, signalling that demand for the company’s data/AI solutions is increasing.
Analysts are bullish
Second, analysts are scrambling to lift their price targets. Since Snowflake’s last earnings report on 27 August, the stock has received a ton of upgrades.
Nvidia and Palantir have had upgrades too recently. But there have been more here (around 30 brokers have increased their price targets for Snowflake over the last week).
Note that a lot of analysts see the potential for gains of 20%-25% in the medium term. Broker price target increases generally push a stock higher.
Smaller market cap and lower valuation
Next, we have the company’s size. Today, Snowflake is far smaller than the other two businesses.
Currently, its market cap is only around $80bn. That compares to $370bn for Palantir and $4.3trn for Nvidia.
Related to size is valuation. Looking at price-to-sales ratios, Snowflake is currently trading at 17 versus 21 for Nvidia and 89 for Palantir.
So, it’s significantly cheaper than the other two stocks by this metric.
Potential for a catch-up
Finally, and this ties back to my first point, Snowflake has lagged other AI stocks over the medium term. While Nvidia and Palantir have soared to new all-time highs over the last year, Snowflake hasn’t.
So, I think it has some catching up to do. I expect it to outperform as investors realise this company is the real deal when it comes to AI.
Worth a look
Now, there’s no guarantee it will outperform the other two AI stocks of course. The company faces competition from firms like Amazon and Databricks and a slowdown in growth is always a risk.
It’s worth pointing out that the valuation is high. Therefore, it could experience a wobble over the next 12 months (as could Nvidia and Palantir).
I’m excited about the potential here though. I think Snowflake is worth considering as a growth stock today.
