Businesses are spending millions on software powered by artificial intelligence (AI) to drive automation and efficiency and use data to make smarter, faster decisions. And that trend may just be beginning. According to analysis by Grand View Research, the enterprise AI market could grow at an annual rate of 37.6% from 2025 to 2030.
Two companies in the enterprise software space that are expected to grow over the next few years are: Palantir Technologies (NYSE:PLTR) and microsoft (NASDAQ: MSFT). Both companies have already recognized that massive AI spending will benefit their businesses and shareholders. As of this writing, Palantir stock is up 230% this year alone. Microsoft’s stock is up 77% since announcing a capital increase. Generation AI Becomes OpenAI leader in early 2023.
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Despite the industry’s solid outlook, Wall Street analysts only expect one of the enterprise software leaders to continue rising further over the next 12 months.
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Palantir has a median price target of $38 per share, based on the forecasts of 22 analysts. This represents a 30% drop from the stock price as of this writing.
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Microsoft has a median price target of $500 per share, based on 57 analyst estimates. This represents an 18% upside from the stock price as of this writing.
Here’s what investors need to know.
Palantir develops software that helps government agencies and commercial customers use big data to find insights and increase operational efficiency. Our initial focus on government contracts allowed us to develop a framework that could also be applied to large private sector customers.
Palantir’s business customer base is growing rapidly, increasing 51% year-over-year. U.S. commercial revenue rose 54% year-over-year in the third quarter, driving overall growth of 30%.
At the same time, the company leveraged its growing scale to expand its adjusted operating margin to 38% from 29% in the same period last year. Sales exceeded the Rule of 40, suggesting there may be more room to grow faster if the company invests more in sales and marketing. But CEO Alex Karp would rather focus on building great products for a select few customers with deep pockets. He suggests it will lead to better results in the long run.
Palantir offers two major software platforms: Gotham for government clients and Foundry for commercial clients. The company introduced the Apollo platform in 2021 to ensure continuous operations for its clients and enable them to run their software in virtually any environment.
Recently, Palantir added an Artificial Intelligence Platform (AIP). This enables customers to use natural language to explore and understand data and automate workflows. Clients can also use AIP to develop applications based on the data. AIP is an essential tool for Palantir to drive demand for the platform among clients, validating Karp’s product-centric theory.
Palantir is doing very well from an operational standpoint. The problem is that stock prices are extremely high. The stock is currently trading at a multiple of 46 times enterprise value to sales (EV/S). Looking at analysts’ forecasts for 2025, the multiple only drops to 35x. jeffries Analyst Brent Till noted after Palantir released its results earlier this month that it was the most expensive company in the software industry. It’s hard to imagine that the company’s earnings are significantly above expectations to compensate for its unusually high valuation.
Microsoft has two ways to take advantage of its increased investment in AI. Azure, a cloud computing platform, and Copilot AI agents built into enterprise software solutions.
Azure has emerged as the top cloud platform for developers working on AI. This was further strengthened by our initial investment in OpenAI, which added $10 billion in January 2023. Azure OpenAI usage has more than doubled in the past six months, management said in a conference call. First quarter financial results briefing At the end of October. As a result, Azure revenue grew 33% year-over-year in the most recent quarter.
Management expects Azure revenue to further accelerate in the second half of fiscal 2025 as much of the capital investment from 2024 takes time to get up and running. We can see that there is no shortage of demand for that ability.
Meanwhile, Microsoft is seeing strong demand for Copilot, which is integrated into Github and Microsoft 365. Github Copilot’s enterprise customers grew 55% from last quarter as they use AI agents to generate code, improve workflows, and discover software vulnerabilities. Almost 70% of Fortune 500 companies use Microsoft 365 Copilot, and the number of people using it daily has doubled from last quarter. Copilot Studio provides a way for businesses to create agents that interact with their data and connect to different parts of Microsoft’s software suite.
Importantly, Microsoft’s stronghold in the enterprise software segment supports Azure business as companies gradually move more workloads to the cloud. Microsoft uses Azure to facilitate the operation of hybrid cloud environments, allowing clients to migrate at their own pace.
At current prices, Microsoft stock looks attractive. The company’s corporate value to sales (EV/S) ratio remains at just over 12 times. Using analysts’ 2025 forecasts, that multiple approaches 11x. While some may think the forward earnings multiple of 32.5x is high, the premium becomes much more reasonable when you consider that Microsoft is growing from two trends in AI and has the capacity to buy back its own stock. It looks like there is. Wall Street certainly thinks so.
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Adam Levy I have a job title at Microsoft. The Motley Fool has positions in and recommends Jefferies Financial Group, Microsoft, and Palantir Technologies. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has Disclosure policy.
Palantir vs. Microsoft: Wall Street says only one company will rise from here Originally published by The Motley Fool
