Palantir Vs. AMD: Is Either AI Stock a Buy Amid Valuation Concerns

Palantir (PLTR) and AMD reported strong Q3 results, exceeding expectations and raising guidance due to robust AI demand, yet both stocks have declined over 10% this month amid broader market valuation concerns. Palantir significantly upgraded its full-year revenue and free cash flow outlooks, while AMD raised its Q4 sales guidance, driven by record AI chip sales. Despite high valuation multiples (PLTR 266x forward P/E, AMD 60x), Palantir's strong EPS revisions and both companies' increasing free cash flow indicate appealing long-term prospects.

Analysis

Palantir (PLTR) and AMD reported strong Q3 results, exceeding top and bottom-line expectations and raising guidance, driven by robust demand for AI-related products and services. Despite these favorable outcomes, both stocks have experienced a decline of over 10% this month, reflecting broader market valuation concerns and fears that their extensive year-to-date rallies may be overdone.

Palantir significantly upgraded its full-year revenue outlook to $4.39–$4.4 billion and its Q4 revenue to $1.33 billion, fueled by explosive demand for its Artificial Intelligence Platform (AIP), which drove a 63% yearly increase in Q3 sales and a 120% surge in U.S. commercial segment revenue. The company also increased its full-year adjusted operating income target to exceed $2.15 billion and its free cash flow target range to $1.9-$2.1 billion.

AMD raised its Q4 sales guidance by $400 million to $9.6 billion, demonstrating confidence in its expanding AI and data center businesses, even amidst geopolitical constraints. Its AI chips contributed to record Q3 sales of $9.24 billion, a 35% increase year-over-year, alongside record free cash flow of $1.53 billion, which grew over 200% from the comparative quarter.

While both companies trade at elevated forward multiples (PLTR 266X P/E, 99X P/S; AMD 60X P/E, 11X P/S) compared to the S&P 500's 25X P/E and 5X P/S, Palantir's Zacks Rank #2 (Buy) and substantial FY25/FY26 EPS revisions (spiking 10% and 20% respectively) suggest potential to grow into its valuation. AMD holds a Zacks Rank #3 (Hold), with more modest FY26 EPS revisions, indicating less immediate upside despite strong long-term projections.

Key Decisions for Investors

• Investors should consider Palantir's significant fundamental upgrades and positive EPS revisions as a potential buying opportunity following its recent pullback, despite its high valuation multiples.
• Monitor AMD for sustained AI segment growth and further EPS revisions, as its current valuation and less significant short-term catalysts suggest a more cautious hold position.
• Evaluate both companies' increasing free cash flow generation as a key indicator of long-term profitability and operating leverage, particularly in the context of current market valuation concerns.