Palantir Technologies (PLTR -2.42%) is a recognized leader among artificial intelligence (AI) and machine learning platform providers, and the company is leaning into that functionality. Palantir recently reworked its go-to-market strategy to drive adoption of its Artificial Intelligence Platform (AIP), a new product that brings support for generative AI to its existing data analytics platforms.
Management sees tremendous upside in AIP, as does Wedbush Securities analyst Dan Ives. In fact, Ives has called Palantir "the gold standard in AI," explaining that its ability to monetize AI on both the government and enterprise sides makes it the "best pure play" option in the space. And the market is no less bullish. Palantir stock rocketed about 150% higher over the past year.
However, Wall Street remains largely skeptical where Palantir is concerned. The stock has a consensus "sell" rating among analysts, and its median 12-month price target of $14.50 per share implies 10% downside from its current price. For comparison, Wall Street is quite bullish on a lesser known AI stock: HubSpot (HUBS -0.32%).
Wall Street currently has a median 12-month price target of $600 per share on HubSpot stock, implying 12% upside from its current price. The stock also carries a consensus "buy" rating. In fact, not one analyst recommends selling shares of HubSpot at the present time.
Here's what investors should know.
HubSpot is leaning into artificial intelligence
HubSpot specializes in customer relationship management (CRM) software. Its platform includes applications that improve productivity across sales, customer service, marketing, and operations teams. HubSpot has cultivated a particularly strong presence among small and medium-sized businesses due to its freemium pricing strategy, tiered product portfolio, and focus on simplicity.
Indeed, that strategy has been so effective that research company G2 ranked HubSpot as the best global software seller across any category in 2023. That commendation not only reflects a strong market presence, but also high user satisfaction scores. HubSpot is also a recognized leader in marketing automation software and artificial intelligence (AI) sales assistant software among small businesses, and the company is leaning into that expertise.
Specifically, HubSpot recently announced HubSpot AI, a suite of AI-enabled tools that automate tasks and surface predictive insights across the CRM platform. For instance, it can draft emails and predict future sales, write social media copy and create marketing content, and prioritize and respond to customer service requests. HubSpot AI can even automate the construction of websites. The company also launched ChatSpot, a generative AI assistant that lets users engage the CRM platform with natural language.
HubSpot reported strong financial results in the third quarter. Revenue climbed 26% to $558 million on a 22% increase in customers and a 3% increase in subscription revenue per customer. Even more impressive, non-GAAP net income soared 138% to $83 million as its operating margin expanded seven percentage points due to cost control efforts.
HubSpot is an innovation machine
HubSpot has innovated quickly over the past year, something stakeholders have come to expect from the company. Of particular note, HubSpot added new features to Sales Hub in the third quarter, including new prospecting and deal management solutions. Those upgrades should help the company win more large customers.
To add detail to that, Sales Hub is a suite of productivity tools that are designed to improve outcomes across the sales lifecycle, from generating leads to closing deals. HubSpot aims to draw larger businesses to its platform to expand its addressable opportunity, which management currently values at $51 billion.
The company is pursuing that goal by adding more sophisticated features to its CRM applications. While still early, that strategy has merit. CEO Yamini Rangan noted "pretty significant traction" with new Sales Hub features in the third quarter.
Additionally, the introduction of HubSpot AI positions the company to benefit from growing demand for automation in the CRM market. Management says 40% of enterprise customers have already used HubSpot AI features.
That early momentum is particularly encouraging because generative AI spending within the CRM space is forecast to increase at 21% annually through 2032. For context, the broader CRM software market is projected to expand at 14% annually through 2030.
HubSpot stock trades at a reasonable price
Ultimately, HubSpot should achieve above-average revenue growth as it continues to push upmarket and lean into generative AI, helped along by its leadership position in marketing automation and AI sales assistant software.
Indeed, analysts at Morningstar expect revenue to increase at 21% annually over the next five years. Investors can reasonably expect a similar growth trajectory through the end of the decade. In that context, its current valuation of 13.3 times sales appears reasonable, especially when the three-year average is 16.6 times sales.
Patient investors should feel comfortable buying a small position in this growth stock today. But the key word is "patient". There is no guarantee HubSpot shareholders will turn a profit over the next 12 months, regardless of Wall Street's price target.
Trevor Jennewine has positions in Palantir Technologies. The Motley Fool has positions in and recommends HubSpot and Palantir Technologies. The Motley Fool has a disclosure policy.
