Investors looking for promising tech stocks might be tempted by Palantir Technologies (NYSE: PLTR), whose stock has seen substantial gains—over double in the past year. This growth is largely attributed to the company’s accelerating revenue, which has surged 17% from the previous year, and its ongoing endeavors to acquire new government contracts alongside a flourishing commercial business. With the implementation of cutting-edge generative AI tools, Palantir’s outlook is certainly appealing, as it boasts an anticipated earnings per share (EPS) growth that could surpass 100% in 2024.
However, with such optimism comes a cautionary note: Palantir’s stock is currently trading at a premium valuation—over 70 times its forward adjusted earnings and approximately 20 times next year’s expected sales figures. Given these high valuations, investors looking for alternatives might want to consider two underrated tech stocks that also exhibit strong growth potential and more reasonable price tags: Innodata (NASDAQ: INOD) and Datadog (NASDAQ: DDOG).
Innodata has undergone a significant transformation recently. After barely increasing its revenue with a compound annual growth rate (CAGR) of just 6% from 1994 to 2019, the company’s growth trajectory has taken off. Innodata’s revenue grew at a CAGR of 12% from 2019 to 2023, and analysts project a remarkable CAGR of 38% from 2023 to 2026. The surge in growth is attributed to the launch of innovative generative AI services that comprise strategic partnerships with some of the industry’s leading firms, potentially positioning Innodata as a rising star in the hyper-growth AI landscape. With a forward earnings ratio around 31 and a price-to-sales ratio of 2, this stock presents an attractive investment opportunity.
Similarly, Datadog, known for its diagnostic data services that enhance real-time monitoring for IT infrastructure, is poised for lasting growth. After going public at $27 per share in 2019, Datadog hit an all-time high of nearly $197 during the height of market sentiment in late 2021. Although the stock retraced to about $107 amid a more challenging economic climate, it remains a high-growth prospect. Datadog’s revenue grew by a CAGR of 67% from 2019 to 2022, and while the company saw a slowdown to 27% growth in the last year, analysts expect revenue to rise significantly in the coming years, with a CAGR projection of 24% from 2023 to 2026.
Investors looking for compelling tech opportunities might find that both Innodata and Datadog offer impressive growth rates that rival those of Palantir, yet with significantly lower valuation multiples—55 times forward earnings for Datadog and reasonable sales metrics as well. This contrast may attract value-seeking investors who are cautious about entering into Palantir’s current market price.
In conclusion, while Palantir continues to show promise, it could be wise to explore other tech stocks like Innodata and Datadog, both of which are gaining momentum and offer a stronger balance between risk and potential reward. As with any investment, thorough research and consideration of individual financial goals are crucial to making informed decisions in today’s dynamic tech landscape.