The AI Boom: Why Two Under-the-Radar Stocks Might Be Better Bets Than Palantir
A Record-Breaking Rally
Palantir’s stock has been on a tear, hitting a record high of $51.13 on November 5. The analytics software company’s revenue growth, soaring profits, and inclusion in the S&P 500 have all contributed to its 223% year-to-date rally. But with valuations at 186 times forward earnings and 33 times next year’s sales, investors may want to consider alternative AI plays.
Nvidia: The Linchpin of the AI Market
Nvidia is the dominant producer of high-end data center GPUs, powering AI applications for companies like OpenAI, Microsoft, Alphabet’s Google, and Meta Platforms. The soaring popularity of generative AI applications has driven demand for Nvidia’s GPUs, leading to a 126% revenue increase in fiscal 2024. While the company faces long-term challenges, analysts expect revenue and EPS to grow at a CAGR of 51% and 56%, respectively, from fiscal 2024 to fiscal 2027.
TSMC: The Backbones of the Semiconductor Market
TSMC is the world’s largest and most advanced contract chipmaker, manufacturing chips for companies like Nvidia, AMD, and Apple. Its lead in the “process race” to manufacture smaller and denser chips has allowed it to pull ahead of competitors like Samsung and Intel. With plans to start mass producing 2nm chips next year, TSMC is poised for continued growth. Analysts expect revenue and EPS to grow at a CAGR of 25% and 28%, respectively, from 2023 to 2026.
A More Balanced Approach
While Palantir’s growth prospects are impressive, investors may want to consider a more balanced approach by investing in Nvidia and TSMC. Both companies have strong growth potential and trade at more reasonable valuations than Palantir. As the AI market continues to expand, these two under-the-radar stocks may be better bets for long-term investors.
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