Two 'Buy' Ratings, One Real Bargain: Palantir vs Salesforce

Two 'Buy' Calls — but Only One Is Actually Cheap

Straight to the point: Morningstar said buy both Palantir and Salesforce, but when I ran the numbers myself, only one holds up.

Two stocks on the same buy list can be this different. One is enjoying the best stretch of its life yet its price already reflects that entire future; the other has flat growth but a management team openly signaling the stock is cheap. Let's take them one at a time.

Option A — Palantir (PLTR): Great Company, Wrong Price

There's no doubt about Palantir's business. The problem is the price.

Palantir turns a giant organization's data into clear decisions. It used to depend on military and government contracts, but it's expanding into multinational businesses — and succeeding. Revenue grew 85% last quarter, and sales to US businesses jumped over 130%. The stock recently crashed 40% to a one-year low before recovering to $134. It had the best stretch of its business life while the stock was crashing.

The business quality is excellent. Market cap $344 billion, with enterprise value actually $6 billion lower (more cash than debt). Free cash flow was $2.7 billion last year, well above the $1 billion five-year average. Gross margin is 84% — of every new contract, 84% is basically profit before taxes and overhead. Three-year revenue growth is 38% a year, five-year 34%. Return on capital was 15% last year.

But here's the problem: 128x free cash flow and a 150x PE. Enormous numbers. There's also a dilution history — shares up 26% over five years — though it's finally stabilizing (2.57 vs 2.58 billion, a slight decline). A cash-generative company has no reason to keep diluting shareholders, so that's a welcome shift.

I look at this one the way Buffett does — can I reasonably predict what it earns over the next ten years? For Palantir that's very hard. So I went aggressive: revenue growth 15, 20, 30%; margins 30, 40, 55% (last year's FCF margin was 51.5%); PE 18, 22, 26. Nobody would call these conservative. Yet the output at $134 is a low of $26, a high of $196, and a middle of $59. Even my best-case assumptions produce just a 13.5% return. How well does it usually go, investing on someone's best-case scenario? I don't agree with Morningstar's buy here.

Option B — Salesforce (CRM): Management Hands You the Hint

Salesforce is the opposite situation — unglamorous, but the price makes sense.

Salesforce is the dominant player in customer relationship management (CRM) — the software for tracking who your customers are, what they bought, and how to keep them. The stock is down 32% over five years. Yet the business grew from $26.5 billion in revenue five years ago to $42.8 billion last year. Price and fundamentals moved in opposite directions.

The clearest signal is the buyback. In a single recent quarter they repurchased about $27 billion of stock, shrinking the company by roughly 16%. When a company buys back that much stock that fast, it's shouting that it thinks the shares are a bargain.

The numbers: market cap $148 billion, enterprise value $28 billion — a $60 billion gap, the biggest net-cash position among these six stocks. Free cash flow was $14.5 billion last year versus a $9.6 billion five-year average. It trades at just 10x free cash flow — this was a company that used to trade at 40–50x. Returns on capital are weak, though (4.5% over five years, 8.8% last year), and margins jumped from 11% over ten years to 18.7% last year (the question is whether that lasts). Gross margin is 72%, and they spent $27.5 billion acquiring Slack.

My 10-year assumptions — revenue 5, 7.5, 10%; FCF margins 25, 30, 35% (I focus on FCF since it far exceeds net income); PE 14, 18, 22. The result: low $210, high $577, middle $355 — about a 20% annual return from today's price on the middle case. This is the one name where I agree with Morningstar that it's worth a deeper dive.

Side by Side

Metric	Palantir (PLTR)	Salesforce (CRM)
FCF multiple	128x	10x
PE	150x	Low (5yr NI < FCF)
Gross margin	84%	72%
3-yr revenue growth	38%/yr	High single digits
Buybacks	26% dilution over 5yr (stabilizing)	16% shrink in one quarter
Net cash	+$6B	+$60B
My middle-case return	13.5% even on best case	~20%
My verdict	Not a buy	Worth a deeper look

Same buy label, very different reality. Palantir is a great company whose price has already borrowed the whole future; Salesforce has flat growth but far more room in its price. Cheap and less expensive are not the same thing.

FAQ

Q: If Palantir's business is this good, why not buy it? A: The business quality isn't the issue — the price is. At 128x FCF and a 150x PE, even very aggressive assumptions capped the return at 13.5%. A great company at the wrong price is a bad investment.

Q: Why do Salesforce's buybacks matter? A: Management buys back stock when it believes the shares are cheap. Shrinking the company 16% in a single quarter is a strong signal. Just remember buybacks only help when done at a low price.

Q: What did Michael Burry do with Palantir? A: He shorted it above $200 and recently closed the short, and the stock popped a fair bit when he exited. A closed short isn't itself a buy-now signal.

Q: If you had to pick one? A: On my numbers, Salesforce is far more attractive. But required returns and future assumptions differ by person — if you're convinced Palantir's growth persists, your conclusion could change.