Palantir Technologies (NASDAQ: PLTR) was the top-performing stock in the S&P 500 last year, fueled by momentum from its artificial intelligence (AI) platform. The company’s focus on the workflow and application layers of AI has encouraged many businesses to try out its solutions. As Palantir transitions clients from trial phases to full production, there remains a significant opportunity for expansion.
However, the impressive climb in Palantir’s stock price has resulted in a daunting valuation. Currently, it trades at a forward price-to-sales ratio (P/S) of 40 times projected fiscal 2025 estimates, for a company that only grew its revenue by 30% last quarter. This valuation is more than double the peak multiples seen in software-as-a-service (SaaS) stocks a few years ago, when those companies were similarly experiencing mid-30% revenue growth. Additionally, recent months have seen Palantir’s executives, including the CEO and chairman, selling shares aggressively.
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Now let’s explore two other AI stocks that are trading at more reasonable valuations.
Nvidia: Leading the AI Charge
Nvidia (NASDAQ: NVDA) stands out as one of the main beneficiaries of AI advancements. The company’s graphics processing units (GPUs) have become essential in AI infrastructure. Consequently, Nvidia witnessed a remarkable 94% revenue growth last quarter.
Despite soaring stock prices over the years, Nvidia maintains an attractive valuation with a forward price-to-earnings (P/E) ratio below 31 based on 2025 analyst estimates. Its price/earnings-to-growth (PEG) ratio sits around 0.96, indicating that it might be undervalued, as PEG ratios under 1 are often seen this way.
NVDA PE Ratio (Forward 1y) data by YCharts
Looking ahead, Nvidia has significant growth prospects. As established tech companies and AI startups compete to develop superior AI models, they will require increasingly powerful computing capabilities and GPUs. For instance, Meta Platforms’ Llama 3 model was trained on 16,000 GPUs, while Llama 4 is expected to utilize 160,000 GPUs. Speculations suggest that future AI models might even be trained using clusters of 1 million GPUs.
As the leading GPU supplier, Nvidia is well-positioned to benefit from this growth in AI infrastructure. Its CUDA software laid the groundwork for programming chips for tasks beyond graphics rendering, providing a significant competitive edge. The introduction of various AI-focused micro-libraries has further strengthened its position in the market.
Salesforce: A Value Play in AI Software
On the software front, Salesforce (NYSE: CRM) offers a compelling alternative to Palantir, trading at just 7.7 times next year’s analyst estimates.
CRM PS Ratio (Forward 1y) data by YCharts
Salesforce has exciting prospects in AI with its Agentforce solution, which aims to become a leader in agentic AI—expected to be the next evolution beyond generative AI. While generative AI provides instructions on tasks, agentic AI is designed to autonomously carry out complex tasks with minimal human input.
Salesforce’s Agentforce can be implemented across various industries. For example, retail AI agents can learn from consumer behavior to provide personalized assistance, while customer service AI agents can automate complaint resolutions by evaluating past interactions.
This tool costs $2 per conversation. In December, Salesforce announced that it had secured 200 Agentforce deals since launching in October, with numerous potential agreements in the works. They plan to deploy 1 billion Agentforce agents by the end of fiscal 2026 (January 2026).
Salesforce is also innovating rapidly, as seen with the recent launch of Agentforce 2.0, which allows users to create custom tools without coding and integrates into its Slack platform.
Although Salesforce’s growth has not matched Palantir’s, it is positioned for significant developments in AI and is attractively valued compared to its competitor.
Should You Invest in Nvidia Now?
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*Stock Advisor returns as of December 30, 2024
Randi Zuckerberg, a former director of market development at Facebook and sister of Meta Platforms CEO Mark Zuckerberg, serves on The Motley Fool’s board of directors. Geoffrey Seiler holds no positions in any mentioned stocks. The Motley Fool has positions in and recommends Meta Platforms, Nvidia, Palantir Technologies, and Salesforce. Detailed disclosure policies are available.
The views expressed are those of the author and do not necessarily reflect the views of Nasdaq, Inc.
