What's the hottest mega-cap stock on the market right now? Palantir Technologies (NASDAQ: PLTR). Shares of the artificial intelligence (AI)-powered software provider have skyrocketed more than 70% year to date. No other stock with a market cap of at least $200 billion has delivered anywhere close to that gain.
While many investors have hopped aboard the Palantir bandwagon, Warren Buffett isn't one of them. Don't expect the multi-billionaire to become a fan of the stock anytime soon, either. Here are three reasons why Buffett wouldn't touch Palantir stock with a 10-foot pole.
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I seriously doubt that Buffett has even looked at Palantir's financials. Why? The company's business isn't in Buffett's wheelhouse.
The legendary investor was asked at Berkshire Hathaway's annual shareholder meeting last month if he anticipated being able to put the conglomerate's hefty cash stockpile to use soon. Buffett replied that he'd be willing to invest $100 billion in a company if it met several criteria. First on the list was that he understands the business.
Granted, Berkshire's portfolio has included software companies in the past. Snowflake is a great example. However, CNBC noted shortly after Berkshire invested $800 million in the AI cloud software provider, "It's widely speculated that Buffett lieutenants Todd Combs and Ted Weschler orchestrated the Snowflake bet." I think it's a safe bet that this take is correct.
Buffett has readily acknowledged that he doesn't understand AI. I suspect Palantir's AI-focused business is enough reason by itself for the legendary investor to avoid buying any shares.
Let's suppose, though, that Buffett didn't shy away from investing in Palantir because of its business. I still don't think he would buy the stock for another critical reason: He couldn't reasonably estimate the company's long-term earnings growth.
Buffett wrote to Berkshire Hathaway shareholders in 2014 that his first step in evaluating a stock (or business) he's considering buying is to try to estimate its future earnings for at least the next five years. He stated, "If, however, we lack the ability to estimate future earnings -- which is usually the case -- we simply move on to other prospects."
I seriously doubt that Buffett would be able to project Palantir's earnings growth because so much of the company's business stems from U.S. government contracts. How much federal money Palantir might receive depends in large part on which way the political winds are blowing over the next few years. Buffett's nickname is the "Oracle of Omaha," but even he probably wouldn't try to predict what will happen in Washington, D.C.
Buffett studied under Benjamin Graham, who is widely recognized as "the father of value investing." Although Buffett isn't as much a purist value investor now as he was in the past, he still looks closely at stock valuations before investing.
I'd bet that Buffett would find Palantir's valuation shocking. Actually, I think many investors would find it shocking. We're talking about a stock that trades at roughly 103.9 times trailing 12-month sales and more than 238 times forward earnings.
The only way those metrics would be justifiable is if Palantir were generating truly spectacular growth. To be sure, the company is growing rapidly -- 39% year over year in the first quarter of 2025. But is this growth rate sustainable? Probably not. Palantir's own revenue guidance for full-year 2025 reflects expected somewhat slower growth of around 36%. The consensus Wall Street estimate is for even more of a slowdown in revenue growth next year.
Could I be wrong that Buffett wouldn't touch Palantir stock with a 10-foot pole? Maybe. But with the AI software company's stratospheric valuation, I'd be comfortable making it a 20-foot pole.
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Keith Speights has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway, Palantir Technologies, and Snowflake. The Motley Fool has a disclosure policy.
Snowflake (NYSE: SNOW) stock floated 8.9% higher through 10:25 a.m. ET Thursday after the company posted top- and bottom-line "beats" in its first-quarter earnings report last night.
Heading into the report, Wall Street analysts forecast Snowflake to earn $0.21 per share on $1.01 billion in revenue. In fact, Snowflake earned $0.26 per share on sales of $1.04 billion.
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The provider of artificial intelligence (AI) software reported 26% revenue growth in Q1, and a 124% "net revenue retention rate" -- meaning effectively all existing Snowflake customers renewed their subscriptions, and the company added even more new customers. Remaining performance obligations, or backlog, grew 34%, foreshadowing additional sales growth to come.
That's the good news. The bad news is that despite the $0.26 profit analysts are cheering about, Snowflake's earnings as calculated according to generally accepted accounting principles (GAAP) were negative -- a $1.29-per-share loss that was actually worse than last year.
But the other good news is that free cash flow was positive. The company reported $183.4 million in positive cash profits, calculated as operating cash flow minus capital expenditures.
Investors seem happy with that number, but I consider it a yellow flag.
Why? Well basically, because last year in Q1, Snowflake generated $339 million in free cash flow. So this week's number actually represents a 46% decline in FCF. So while sales are surging, and Snowflake CEO Sridhar Ramaswamy may be doing a good job of convincing customers that "every enterprise [can] achieve its full potential through data and AI," Snowflake itself isn't making nearly as much money on AI now as it did a year ago.
With Snowflake stock costing nearly 79 times FCF today, it may be time to sell.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Snowflake. The Motley Fool has a disclosure policy.
It's hard to watch the value of your investments falter in a short period, but everyone is in the same boat. The good news is that market declines are historically excellent buying opportunities. Markets can fall but they inevitably hit bottom and skyrocket back to new highs over time, providing handsome gains for investors who ride through the volatility.
If you've got $3,000 you don't need for other life priorities like reducing debt, this is a great opportunity to invest in competitively positioned companies at better prices. The technology sector will continue to churn out monster winners over the long term. Spending on artificial intelligence (AI) is expected to reach $1.1 trillion by 2031, according to Statista. Here are two stocks to profit off this trend over the long term.
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Nvidia (NASDAQ: NVDA) is enabling the rapid adoption of AI. Its graphics processing units (GPUs) are used in everything from playing video games to powering the largest data centers, where the AI magic happens. It has led the GPU market for many years and continues to dominate, making it one of the best AI stocks to consider holding for the long term.
CEO Jensen Huang will go down as one of the great business leaders of the 21st century. He started Nvidia over 30 years ago and instilled a corporate culture that constantly looks for new opportunities. This is how Nvidia adapted its GPU technology from running video games to powering entire computing systems for training large language AI models.
Nvidia's share of the AI chip market is estimated to be over 80%. It is seeing growing demand from several markets. Leading cloud service providers make up about half of its data center revenue. Nvidia also expects revenue for its autonomous vehicle solutions to reach $5 billion this year. Leaders in healthcare like Mayo Clinic and Illumina are using Nvidia's technology to speed up drug development and AI-powered health services.
Competition will intensify, as other semiconductor companies and cloud leaders are making their own custom AI chips. But Nvidia is a good bet for the long term based on its pace of innovation. In addition to chip hardware, Nvidia also offers software tools like CUDA and TensorRT, which help customers get the most out of Nvidia's GPUs for a given task. Nvidia offers everything needed to build a data center for the AI era.
Nvidia is strong financially. It earned $73 billion in net income on $130 billion of revenue last year. The company has $35 billion of net cash sitting in the bank. These resources are enabling it to continue innovating to meet growing demand for advanced computing systems.
With Nvidia seeing demand across multiple markets like healthcare and automotive, the stock is a good buy on the dip and should continue to reward long-term investors.
Snowflake (NYSE: SNOW) is a leading cloud-based platform that helps companies gather valuable insights from their data. Its data management services are offered through the leading cloud services, including Amazon Web Services, Microsoft Azure, and Alphabet's Google Cloud, and it is starting to see strong adoption for AI offerings.
Its cloud-agnostic position is an advantage. Companies can use Snowflake's data services across multiple clouds, which enables more collaboration and positions the business to capture market share as demand for AI software increases. Over 4,000 customers are now using Snowflake's AI and machine learning tools on a weekly basis.
The stock's recent decline sets up a great buying opportunity. Snowflake continues to report strong revenue growth and sees existing customers spending more on its services. This is noted by a 28% year-over-year increase in product revenue last quarter, with a 126% net revenue retention rate. Snowflake now has 580 customers generating more than $1 million in product revenue, up from 461 a year ago.
Competition is tight in the cloud market, but a key sales pitch for Snowflake's services is cost savings. Management said on its last earnings call that it is seeing more customers save over 50% by moving their data from other providers to Snowflake.
AI adoption is pushing more companies to find cost-effective ways to use AI with their data so they don't get left behind. This is a huge opportunity for Snowflake. The market for enterprise infrastructure software is expected to double from 2023 levels to reach $342 billion by 2028, according to Gartner.
Snowflake is not profitable on a net income basis, but it generated $884 million of free cash flow on $3.4 billion of product revenue last year. The company's growth on top of a lower share price has brought its price-to-sales multiple down to 12, which is reasonable for a fast-growing cloud leader and should set the stage for attractive long-term gains.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, Nvidia, and Snowflake. The Motley Fool recommends Gartner and Illumina and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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