Should You Forget Palantir and Buy 2 Artificial Intelligence (AI) Stocks Right Now?

The article highlights Advanced Micro Devices (AMD) and CoreWeave as compelling AI investment alternatives to Palantir Technologies, which is noted for its high valuation. AMD's stock is up 90% year-to-date, significantly boosted by a deal with OpenAI for its Instinct MI450 GPUs, which includes a warrant for OpenAI to potentially acquire a 10% stake, signaling strong validation for AMD in the AI chip market. CoreWeave, a cloud computing firm providing AI infrastructure, demonstrates rapid growth with a $30.1 billion revenue backlog and substantial deals with OpenAI and Microsoft, underscoring its expansion despite not yet being profitable.

Analysis

Advanced Micro Devices (AMD) has received significant validation in the AI chip market, evidenced by a strategic deal with OpenAI. This partnership involves OpenAI purchasing 6 gigawatts of AMD's Instinct MI450 GPUs and receiving a warrant for up to a 10% equity stake, which Wedbush analyst Dan Ives termed a "huge vote of confidence." This development has propelled AMD's stock up 90% year-to-date, outperforming Nvidia's 43% gain, and positions AMD with a more attractive forward P/E of 28.5 compared to Palantir.

CoreWeave, a cloud computing company focused on AI infrastructure, demonstrates robust growth, reporting Q2 revenue of $1.21 billion, a substantial increase from $395.3 million year-over-year. The company boasts a $30.1 billion revenue backlog, up 86% from the previous year, driven by significant deals with OpenAI ($22.4 billion) and Microsoft (62% of 2024 revenue). Despite not yet being profitable, CoreWeave's forward price-to-sales ratio of 13 is considerably more palatable than Palantir's 104.4, indicating strong growth potential.

Palantir Technologies, while experiencing an impressive 2,130% gain over three years, currently trades at an exceptionally high valuation, with a trailing P/E of 623, a forward P/E of 217, and a P/S ratio of 137. This premium valuation suggests that while its growth story is compelling, investors may find more balanced risk-reward profiles in alternatives like AMD and CoreWeave, which offer exposure to the AI sector with comparatively lower valuation multiples.

Key Decisions for Investors

• Investors should assess AMD's enhanced competitive position in the AI chip market following its strategic deal with OpenAI and consider its more favorable valuation relative to high-growth peers.
• Evaluate CoreWeave as a high-growth AI infrastructure play, noting its substantial revenue backlog and key client relationships, while acknowledging its current unprofitability.
• Re-evaluate exposure to Palantir Technologies given its extremely high valuation metrics and consider diversifying into AI alternatives that offer a more tempered risk-reward profile.