Prediction: 2 Artificial Intelligence (AI) Stocks That Will Be Worth More Than Palantir By the End of 2026

The article suggests that Palantir Technologies, despite strong operational growth including 48% total revenue and 93% U.S. commercial growth, is significantly overvalued with a 221x forward EV/EBITDA multiple. It proposes Alibaba and ASML as more attractive AI-driven investment alternatives. Alibaba, trading at 15.6x EV/EBITDA, is highlighted for its rapidly growing cloud intelligence segment (26% YoY, triple-digit AI revenue growth) and $53 billion commitment to AI infrastructure. ASML, the sole provider of essential EUV lithography equipment for advanced chips, is noted for its robust 34% H1 revenue growth and a more reasonable forward P/E of approximately 34, benefiting from high switching costs and continuous R&D.

Analysis

Palantir (PLTR) has demonstrated impressive operational momentum since the 2023 launch of its Artificial Intelligence Platform (AIP), recording 48% year-over-year total revenue growth and a 46% adjusted operating margin in its most recent quarter. The company's U.S. commercial sales have been particularly strong, growing 93% YoY, suggesting successful market penetration. However, this growth is overshadowed by an extreme valuation, with the stock trading at a forward enterprise value to EBITDA multiple of 221 and a price-to-sales ratio exceeding 100. This valuation implies significant future growth is already priced in, a sentiment echoed by the average Wall Street price target, which sits 14% below its current price. In contrast, the article presents two alternative AI-related investments with more attractive risk/reward profiles. Alibaba (BABA) is positioned as an undervalued AI play, with its Cloud Intelligence Group revenue growth accelerating to 26% YoY, underpinned by eight consecutive quarters of triple-digit growth in AI-related revenue and a planned $53 billion investment in AI infrastructure. Despite this, its stock trades at a modest 15.6x EV/EBITDA multiple, suppressed by weakness in its core e-commerce business. Secondly, ASML, a critical semiconductor equipment supplier, offers a 'picks and shovels' approach to the AI trend. As the sole provider of essential EUV lithography machines, it holds a monopolistic position with high switching costs. The company reported strong revenue growth of 34% in the first half of the year and trades at a more reasonable forward P/E of approximately 34, offering structural exposure to the entire advanced chip manufacturing ecosystem.

Key Decisions for Investors

• Investors should exercise extreme caution with Palantir (PLTR) due to its valuation multiple of 221x forward EV/EBITDA, which presents a significant risk of multiple compression even if strong operational growth continues.
• Consider Alibaba (BABA) as a potential value play on AI, where the market's focus on its challenged e-commerce segment may be creating an opportunity to invest in its rapidly accelerating cloud and AI business at a low 15.6x EV/EBITDA multiple.
• For long-term, broad exposure to the AI hardware build-out, ASML represents a strategic investment due to its monopolistic position in EUV technology, strong revenue growth of 34%, and a more defensible valuation at a ~34 forward P/E.
• Monitor capital expenditure trends from major chip foundries like Intel, as any significant reduction could directly impact ASML's forward-looking revenue and temper its growth outlook.