Palantir Technologies Faces Market Scrutiny Amidst AI Stock Frenzy

Shares of Palantir Technologies (NASDAQ: PLTR) have experienced remarkable growth over recent years. Since 2022, the stock has surged more than 1,000%, elevating its market capitalization to $195 billion as of this writing.

Despite this impressive valuation, Palantir’s financials reveal a different story, with trailing revenue of only $2.8 billion and net income of $462 million. Although artificial intelligence (AI) stocks have captivated Wall Street, analysts note that Palantir’s high valuation could deter investors. The consensus rating for its shares currently stands at a neutral (hold).

Investors should be aware of the significant downside risk associated with Palantir shares. They are trading at an elevated multiple relative to the company’s sales and earnings, a situation that might be unsustainable. In contrast, other AI stocks present more compelling valuations and may outperform Palantir in the coming year. Here, we highlight two promising stocks from the chip and software markets that could potentially eclipse Palantir by next year.

1. Advanced Micro Devices

Advanced Micro Devices (NASDAQ: AMD) stands out as a major supplier of chips for various applications, including consumer PCs, gaming consoles, and data centers. With a market cap of $158 billion, AMD trades at a forward price-to-earnings (P/E) ratio of roughly 21. Wall Street forecasts that AMD’s earnings will grow at an annual rate of 42% over the next several years.

However, the stock has declined 56% from its previous highs, primarily due to mixed financial results across various segments last year. While revenue from data centers and client segments has significantly increased, challenges remain in AMD’s gaming and embedded chip divisions, creating uncertainty about its short-term performance.

Despite these challenges, AMD is well-positioned for continued growth in its data center segment. In the fourth quarter, data center revenue soared 69% year over year to $3.9 billion, accounting for 51% of overall sales. The demand for AMD’s graphics processing units (GPUs) for AI tasks, along with growth in its EPYC central processing units (CPUs), has contributed to this upward momentum.

Notably, AMD’s GPUs are utilized by leading tech innovators—including Meta Platforms, Microsoft, DigitalOcean, and IBM. Management’s optimism is buoyed by increased AI design wins slated for deployment with its MI300 chip in early 2025, plus new MI350 series deployments that target AI inferencing, where models learn from new data. The surge in demand for AI chips could lead to substantial growth for AMD.

Additionally, investors are encouraged by AMD’s gains against Intel in the PC chip market, as client segment revenues rose by 58% year over year, hitting a record $2.3 billion in the fourth quarter. This represents four consecutive quarters of market share growth for AMD’s Ryzen processors.

Although AMD’s smaller businesses in gaming and embedded chips are expected to recover, the strength in data centers and the client segment promises solid returns for investors. The company’s current forward P/E ratio appears reasonable in relation to its growth potential in the semiconductor industry.

2. ServiceNow

ServiceNow (NYSE: NOW) has established itself as a leading enterprise software firm, known for achieving consistent double-digit revenue growth over the years. Organizations rely on ServiceNow to automate and streamline their processes. The stock commands a market cap of $185 billion and carries a forward P/E ratio of 56.

ServiceNow’s revenue has expanded at a compound annual growth rate of 32% over the past decade. Though growth is slowing as the company matures, a 21% year-over-year increase in subscription revenue for the fourth quarter is noteworthy. The company anticipates subscription revenue growth between 18.5% and 19% year over year for Q1 2025.

Widening profit margins are also propelling strong growth in adjusted earnings and free cash flow. On a non-GAAP basis, operating margins reached 29.5% in 2024, with management projecting a rise to 30.5% in 2025. As the company achieves greater scale, margins are expected to continue their upward trajectory.

A key driver of future revenue growth is the adoption of AI agents capable of learning and completing tasks independently. ServiceNow’s management highlighted a remarkable 150% year-over-year increase in new deals for its Pro Plus AI offerings.

The company’s addressable market is projected to grow from $200 billion in 2024 to $275 billion by 2026. Many organizations are increasingly interested in using AI to simplify operations and reduce costs, which is driving momentum in significant transactions. In the fourth quarter, ServiceNow secured 19 deals exceeding $5 million in net new annual contract value.

Analysts forecast that ServiceNow will grow earnings at an annualized rate of 32% in the coming years, suggesting robust support for its current valuation. Compared to Palantir, the stock may provide better performance in the near term and holds promise for market-beating returns over the long run.

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Randi Zuckerberg, a former Facebook director and sister of Meta Platforms CEO Mark Zuckerberg, serves on The Motley Fool’s board of directors. John Ballard has positions in Advanced Micro Devices. The Motley Fool has positions in and recommends Advanced Micro Devices, DigitalOcean, Intel, International Business Machines, Meta Platforms, Microsoft, Palantir Technologies, and ServiceNow. The Motley Fool recommends long positions on January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short May 2025 $30 calls on Intel. The Motley Fool adheres to a strict disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.