Palantir’s Valuation Raises Concerns Amid AI Market Boom
Shares of Palantir Technologies (NASDAQ: PLTR) have experienced remarkable growth over the past few years. Since 2022, the stock has soared over 1,000%, elevating its market capitalization (share price multiplied by total shares outstanding) to $195 billion as of the current moment.
However, this market cap appears elevated for a firm reporting only $2.8 billion in trailing revenue and $462 million of net income. As enthusiasm for artificial intelligence (AI) stocks continues to dominate Wall Street, analysts have begun to raise eyebrows at Palantir’s steep valuation. The consensus rating on Palantir shares is now neutral (hold).
Investors face considerable downside risk with Palantir shares. They are currently paying a high multiple based on the company’s sales and earnings, which may not be justifiable. In contrast, other AI stocks are trading at more reasonable valuations and may outperform Palantir in the next year. Below are two compelling stocks in the chip and software sectors that could exceed Palantir’s market standing within the year.
1. Advanced Micro Devices
Advanced Micro Devices (NASDAQ: AMD) stands out as a leading supplier of chips for consumer PCs, video game consoles, and data centers. Currently, AMD has a market cap of $158 billion and trades at a forward price-to-earnings (P/E) multiple nearing 21. Wall Street anticipates earnings growth of 42% annually in the coming years.
Despite falling 56% from its previous peak due to mixed financial results across various segments last year, AMD showcases potential for growth. The company reported significant revenue growth in its data center and client segments, which more than compensated for declines in the gaming and embedded chip divisions, leading to uncertainty about AMD’s near-term trajectory.
The data center revenue in the fourth quarter surged by 69% year over year to reach $3.9 billion, making up 51% of its overall business. With increasing demand for graphics processing units (GPUs) used in AI workloads, AMD’s EPYC central processing units (CPUs) have also gained market share in the server domain. Major tech firms, including Meta Platforms, Microsoft, DigitalOcean, and IBM, utilize AMD’s GPUs, while upcoming AI applications are set to drive demand for its chips, especially with the anticipated deployment of its MI300 chip in 2025.
Moreover, AMD is gaining traction against Intel in the PC chip market, with client segment revenue increasing 58% year over year, reaching a record $2.3 billion in the fourth quarter. This marks the fourth consecutive quarter of market share growth for AMD’s Ryzen processors. Although some smaller segments may take time to recover, the robust momentum in data centers and client segments positions AMD well for investor returns. Currently, AMD’s stock trades at an attractive forward P/E ratio for a growth company that promises substantial potential in the expanding semiconductor market.
2. ServiceNow
ServiceNow (NYSE: NOW) has established itself as a leading enterprise software provider, demonstrating consistent double-digit growth for many years. Companies utilize ServiceNow’s platform to enhance and automate their business processes. The stock boasts a market cap of $185 billion and carries a forward P/E ratio of 56.
Over the past decade, ServiceNow has achieved a compound annual revenue growth rate of 32%. Although growth rates are beginning to taper off as the company matures, subscription revenue saw a healthy rise of 21% year over year in the fourth quarter. Management suggests that subscription revenue will grow between 18.5% to 19% year over year in Q1 2025.
ServiceNow is also witnessing improved operating margins, a key driver of robust growth in adjusted earnings and free cash flow. In 2024, the non-GAAP operating margin increased to 29.5%, with expectations to climb to 30.5% in 2025 as service scale increases.
A significant growth catalyst for ServiceNow is the rising adoption of AI agents capable of learning tasks autonomously. Management has recently reported a remarkable 150% year-over-year increase in deals for Pro Plus AI offerings. ServiceNow anticipates its addressable market will rise from $200 billion in 2024 to $275 billion by 2026, as more companies aim to streamline operations and reduce costs with AI. In Q4 alone, ServiceNow secured 19 contracts exceeding $5 million in net new annual contract value, showcasing increased momentum.
Looking ahead, analysts forecast that ServiceNow’s earnings will grow annually at a rate of 32% over the next several years, supporting its elevated valuation. In the near term, ServiceNow may exhibit stronger performance than Palantir shares, presenting potential for market-beating returns in the long run.
Should You Invest $1,000 in Advanced Micro Devices Right Now?
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, serves on The Motley Fool’s board of directors. John Ballard holds positions in Advanced Micro Devices. The Motley Fool is invested in and recommends Advanced Micro Devices, DigitalOcean, Intel, International Business Machines, Meta Platforms, Microsoft, Palantir Technologies, and ServiceNow. The Motley Fool advises the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short May 2025 $30 calls on Intel. The Motley Fool maintains a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
