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Palantir’s stock price has surged significantly since the launch of OpenAI’s ChatGPT in late 2022.
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This cloud computing company, often overlooked, is showing impressive revenue growth.
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Manufacturers of semiconductor equipment are likely to see industry growth soon.
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10 stocks that are considered better investments than Palantir Technologies.
Since OpenAI’s introduction, Palantir Technologies (NASDAQ: PLTR) has reaped substantial benefits from the AI boom, with its stock soaring by about 2,300%. As of now, the company boasts a market cap nearing $424 billion.
Nevertheless, despite its remarkable growth, Palantir might not be the top AI stock to consider at the moment. There are potentially two other companies that could outperform Palantir by 2026, which is something for investors to take into account.
Sales have improved significantly for Palantir since rolling out its AI platform in 2023. This new platform allows users, including businesses and government entities, to effectively utilize large language models, making the software more accessible. The demand and variety of use cases have grown alongside this improvement.
The financial outcomes are quite positive. In its latest quarter, Palantir reported a 48% increase in total revenue year-on-year, achieving an operating margin of 46%. The U.S. commercial sales saw a remarkable 93% increase, hinting that the company is landing larger agreements with corporate clients.
However, potential investors are wary due to its high stock valuation. Currently, it trades at an enterprise value of 221 times EBITDA based on forward estimates, and its price-to-sales ratio is also quite steep, exceeding a forward estimate of 100 times. It’s safe to say that Palantir’s stock is expensive, and for it to revert to valuation levels in line with the S&P 500 would require an annual revenue boost of 50% over the next four years without further increase in stock price. Consequently, analysts on Wall Street have a price target of $155, roughly 14% below the current price.
There are, however, two other companies that present more appealing valuations with strong AI growth prospects.
Alibaba (NYSE: BABA), well-known for its global e-commerce platform, has faced stiff competition yet remains a significant player in the sector. Despite some setbacks, Alibaba’s Cloud Intelligence Group, which is the largest cloud provider in China, reported a robust 26% revenue increase year-on-year in the last quarter, bolstered by a growing AI revenue stream.
The company has committed to investing heavily in AI, pledging $53 billion from 2025 to 2027 for infrastructure. They are also working on custom AI solutions amidst restrictions on using Nvidia’s GPUs from the Chinese government. Although concerns linger about Alibaba’s relatively stagnant e-commerce performance, the stock is seen as undervalued, trading at just 15.6 times EBITDA, while its AI segment is expected to drive substantial growth beyond Palantir’s current standing.
ASML (NASDAQ: ASML), another key player, specializes in lithography equipment critical to chip manufacturing. It’s the sole provider of extreme ultraviolet (EUV) machines, essential for advanced chip designs. The company benefits from a solid revenue foundation, enabling significant investments in R&D and vast market share expansion.
Although ASML faced some stock price drops due to uncertainties surrounding demand forecasts, especially regarding Intel’s foundry investments, the long-term outlook for chip demand remains strong. ASML has bounced back and is currently trading at about 34 times forward earnings, with a notable revenue increase of 34% in the first half of the year. There’s potential for further margin growth, especially with increasing EUV machine sales. ASML’s market capitalization is around $380 billion, positioning it as a contender to surpass Palantir’s valuation by next year.
Investors should contemplate these dynamics before diving into Palantir Technologies.
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