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Palantir’s price-to-sales ratio is quite high.
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ASML generates more revenue and boasts better profit margins than Palantir.
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Hermès presents excellent margins alongside steady revenue growth, likely making it a better investment than Palantir.
Investors are keen on Palantir Technologies (NASDAQ:PLTR). The company, involved in software and Artificial Intelligence, has seen its stock surge over 300% in the past year, jumping from under $10 in 2023 to roughly $180 now.
However, it’s worth noting that the stock’s valuation appears unsustainable. Its price-to-sales ratio is at 132, and the future returns for this $400 billion market cap business aren’t assured over the next decade.
Instead of pursuing Palantir, investors might want to explore growth stocks that are stable and have a more reasonable valuation. Here are two notable options that could outshine Palantir in five years.
First, consider ASML Holding (NASDAQ: ASML). This Dutch company specializes in manufacturing equipment for computer chips. While it may fly under the radar for some, ASML is crucial within the semiconductor supply chain.
Without ASML’s lithography equipment, creating advanced chips for brands like Apple and Nvidia just wouldn’t be feasible. This scenario not only leads to significant backlogs due to high demand for AI chips but also grants ASML notable pricing power for its machines.
In fact, a new piece of ASML’s equipment is expected to cost about $400 million. This highlights the immense value embedded in the AI boom and ASML’s central role in supporting it.
Looking ahead, ASML anticipates annual revenue could reach between 44 billion and 60 billion euros ($51 billion and $70 billion) within five years. In contrast, Palantir’s current revenue stands at $3.44 billion, and it seems unlikely to hit $70 billion anytime soon. Additionally, when it comes to earnings before interest and tax (EBIT), ASML outperforms Palantir with margins at 35% compared to Palantir’s 17%.
These aspects give ASML a competitive edge and could lead it to surpass Palantir’s market cap in the next five years.
Next up is Hermès (OTC: Hesei), a company that’s not particularly tied to AI and seems less impacted by AI-associated risks. As a leading luxury handbag and leather goods manufacturer, Hermès enjoys stable growth and is relatively insulated from economic fluctuations.
The brand caters to high-net-worth individuals, with bags often exceeding $10,000, and holds considerable pricing power thanks to the desirability of its artisanal products.
