Meta and Palantir Team Up in Defense Technology TrPermissions of Artificial Intelligence (AI). Which Shares Provide Better Investment Opportunities?
Meta and Palantir Team Up in Defense Technology TrPermissions of Artificial Intelligence (AI). Which Shares Provide Better Investment Opportunities?
Over the past couple of years, there's been a surge of interest among investors regarding the potential of artificial intelligence (AI). However, I've noticed that a large portion of the discussion surrounding AI is repetitive.
Software firms are constantly boasting about how AI-driven services can boost productivity in the workplace, while hardware and infrastructure players have the upper hand due to their control over data centers and semiconductor chips.
Recently, I've been reading about AI's role in the military. Although I was already aware of Palantir Technologies' significant presence at the intersection of AI and the public sector, Meta Platforms' recent announcement has piqued my interest in AI defense applications.
Below, I'll delve into the reasons why Meta's partnership with Palantir is significant and provide my analysis on which stock presents the better investment opportunity as the military AI market gains traction.
How is Meta benefiting the military?
One of the most significant advancements from the AI revolution is the advent of large language models (LLMs). While there are numerous LLMs available, OpenAI's ChatGPT might be the one that rings a bell.
Personally, I've found ChatGPT to be a source of amusement. I've used it to help answer questions when I'm short on time and even scribbled some software code for personal projects.
However, I was unaware of LLMs' enormous potential beyond boosting productivity or answering questions with a simple click. According to a press release from Meta, their Llama AI model is being introduced to U.S. government agencies and private sector contractors.
As per the announcement, LLMs have aided in accelerating defense research, enhancing high-end computing, detecting security vulnerabilities, and improving communication across various systems.
It never crossed my mind that the military and the private sector share many similar operational challenges. But with that said, the military prioritizes safety above all else. According to Mordor Intelligence, the total addressable market size for AI analytics and robotic processing services in the defense sector will surpass $60 billion over the next five years.
Meta has partnered with Palantir as part of its plan to deploy Llama into the public sector. Below, I'll discuss some financial trends and additional perspectives on Meta and Palantir and offer my analysis on which stock is the better investment opportunity at the moment.
Meta stock: Buy, sell, or hold?
Meta's AI strategy is straightforward. The company owns several social media platforms, including Facebook, Instagram, and WhatsApp, and is expanding its presence in virtual reality, gaming, and the metaverse.
On the social media front, Meta is in an advantageous position to leverage AI in ways that provide deeper insights into its user base, ultimately leading to more targeted advertising campaigns and higher user engagement. Additionally, Meta's virtual reality and gaming products open up new opportunities for user acquisition and diversify its advertising-centric business model.
I view Meta's entry into the defense sector and expansion of its AI capabilities as a strategic move to diversify its long-term growth strategy. Despite these promising growth factors, Meta's price-to-earnings (P/E) ratio of 27 is relatively low. I believe investors may be underestimating several potential catalysts, making now the perfect time to buy Meta stock.
Palantir stock: Buy, sell, or hold?
Palantir has gained significant popularity in the AI space over the past year. Following the launch of the Palantir Artificial Intelligence Platform (AIP) in April 2023, the company has experienced a surge in customer acquisitions, revenue growth, and consistent profitability.
Palantir's transformation has not gone unnoticed. Earlier this year, the company announced a partnership with cloud computing specialist Oracle and a deal with Microsoft that integrates AIP with Microsoft's Azure cloud infrastructure across U.S. defense agencies.
These developments have had a notable impact on Palantir's stock price. As I pen this, shares of Palantir have surged over 240% this year, making it the second-highest-performing stock in the S&P 500.
With a market capitalization of around $140 billion and a price-to-sales (P/S) multiple of 53, I have to say that Palantir's stock valuation is inflated.
If you've read my previous pieces on Palantir, you'll know that I'm quite optimistic about the company's future and plan to remain a shareholder. However, at the moment, Palantir's stock valuation is influenced by excessive momentum, and its valuation has become disconnected from reality. For these reasons, I'd advise against investing in Palantir at the current moment but would encourage investors to keep an eye out for potential sell-offs and take advantage of buying opportunities.
In light of the increasing demand for AI in the defense sector, with the total addressable market for AI analytics and robotic processing services expected to surpass $60 billion over the next five years, investing in companies with strong AI capabilities becomes more attractive. Meta's partnership with Palantir in deploying their Llama AI model into the public sector is a strategic move that could potentially yield significant returns in the long term.
Given Meta's advantageous position in social media platforms and expanding presence in virtual reality, gaming, and the metaverse, its AI strategy presents a promising growth opportunity. Despite its relatively low price-to-earnings ratio of 27, investors may be underestimating Meta's potential catalysts, making it an attractive investment option.