Palantir Technologies is on an unstoppable tear. Even after a strong performance in 2024 where it soared 341%, it's up another 78% so far this year. Every time it seems the stock may be running out of room to rise higher, it finds another gear.
Investors made some incredible returns from the stock, but there's no doubt that its valuation has gotten way out of control. At more than 590 times its trailing earnings, there's a lot that can go wrong with a stock that's valued as highly as Palantir.
The company benefited from soaring demand for its artificial intelligence (AI) data analytics platform, but there are safer ways to invest in AI right now. Three stocks that trade at much more reasonable valuations and that may be better AI investments to consider today are Taiwan Semiconductor Manufacturing (TSM +5.08%), Advanced Micro Devices (AMD +13.85%), and Super Micro Computer (SMCI +8.64%).
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Taiwan Semiconductor Manufacturing
If you're bullish on AI, then it's hard not to like Taiwan Semiconductor Manufacturing. It's a dominant force in the chipmaking world, producing the vast majority (around 90%) of advanced semiconductors. As demand for more AI chips grows, so too will demand for Taiwan Semi's foundry.
Business has been solid with sales through the first three months of the year up around 42% while earnings have soared at an even higher rate of 60%. If not for Taiwan Semi's geographic location and the concerns investors may have about the Chinese government's potential influence on the business, the AI stock would likely be trading at a much higher valuation than it is right now.
NYSE: TSM
Key Data Points
Shares of Taiwan Semi are up 13% this year but the stock still trades at only 27 times its trailing earnings -- a steal of a deal when compared to Palantir. With so much more growth ahead for AI, Taiwan Semi can make for an underrated investment to buy and hold.
Advanced Micro Devices
Investors also have shown concern about Advanced Micro Devices, also known as just AMD, and whether its chips can provide much competition to Nvidia's advanced AI chips. AMD's growth rate has been accelerating and showing improvement, but with the stock down 12% over the past 12 months, growth investors don't appear convinced just yet.
AMD announced new AI chips (the Instinct MI400 series) recently and they got a big vote of confidence from OpenAI CEO Sam Altman, who referred to them as "amazing." While investors will want to see results back up that excitement, it's a good sign nonetheless if the CEO of one of the most popular AI companies is not only seeing potential for AMD's chips but also planning on buying them.
NASDAQ: AMD
Key Data Points
When AMD reported its most recent results in May, its top line rose by 36% and was looking good at $7.4 billion. Profits were even more impressive, rising by 476% to $709 million for the quarter, which ended on March 29.
AMD's stock trades at more than 100 times earnings, but as it scales and its profits continue to grow, this will look like a much cheaper stock in the future. And even at its current valuation, it still looks like a bargain compared to Palantir.
Super Micro Computer
Tech company Super Micro Computer, better known was just Supermicro, has risen by more than 55% in value this year. But at 27 times its trailing earnings, it can have much more room to rise higher.
Last year was a tough one for Supermicro as things started out strong but news of its auditor resigning raised red flags for investors; it finished the year up just 7%. The good news is the company has been able to rebound as it appears to have put those fears to rest.
Supermicro makes servers and infrastructure that hyperscalers and other companies involved with AI development rely on. The big problem is that its gross margins are thin (around 10%) and that can mean little room for error.
NASDAQ: SMCI
Key Data Points
Supermicro stock does come with risk but it also has a lot of potential upside as AI spending remains strong. Its revenue through the first three months of the year totaled $4.6 billion and rose 19% year over year. If you're comfortable with taking on some uncertainty and risk, Supermicro could potentially yield much greater returns than Palantir from here on out given its lower valuation and crucial AI products.
