What's the hottest stock in the S&P 500 (^GSPC 1.67%) right now? That's easy: It's Palantir Technologies (PLTR 3.05%). Shares of the artificial intelligence (AI) and data analytics software maker have skyrocketed nearly 90% year to date.
Should you jump on the Palantir bandwagon? I don't think so. Here are three AI stocks that are hands-down better picks than Palantir right now, in my opinion.
Image source: Getty Images.
1. Alphabet
Google parent Alphabet (GOOG 2.49%) (GOOGL 2.30%) looks like an absolute steal compared to Palantir. While Palantir's forward price-to-earnings ratio is a jaw-dropping 256.4, Alphabet's shares trade at only 18.7 times forward earnings.
Sure, Palantir's revenue and earnings are growing more quickly than Alphabet's. However, Alphabet is no slouch when it comes to growth, with the company's first-quarter profits soaring 46% year over year. Importantly, humongous growth is already baked into Palantir's share price. That's not nearly as much the case with Alphabet. Its price/earnings-to-growth (PEG) ratio, which is based on analysts' five-year earnings growth projections, is a not-too-shabby 1.33.
NASDAQ: GOOGL
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Alphabet is well positioned to benefit from the rapidly increasing adoption of AI. Its Google Cloud unit is the fastest-growing among the big three cloud service providers. Integration of generative AI into Google Search is boosting user satisfaction and search usage. And the company's Waymo business is the leader in AI-powered autonomous ride-hailing.
What about the regulatory threats to Alphabet? They shouldn't be ignored. The company has lost two antitrust cases over the last 12 months. However, the story isn't over on this front, with Alphabet appealing the adverse rulings. I think a bet on this AI stock is smarter than a bet against it.
2. Meta Platforms
Meta Platforms (META 3.91%) also offers investors a much more attractive valuation than Palantir. Shares of the social media giant trade at 29 times forward earnings. Ordinarily, that would seem expensive. But it's dirt cheap compared to Palantir.
While Palantir competes against other software companies to win contracts, Meta doesn't have to try very hard to attract advertisers. A whopping 3.43 billion people on average use the company's Facebook, Instagram, Messenger, and WhatsApp apps daily. When you have that huge of an audience, advertisers come running.
NASDAQ: META
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However, Meta is harnessing AI to encourage those advertisers to run even faster. It's developing AI tools that will create an entire marketing campaign based on advertisers' goals. The company is increasing ad conversion rates by using AI to improve ad recommendations. Meta is also using AI to help creators develop content, which should attract more users -- and ultimately more advertising revenue.
Maybe the most exciting AI-related growth opportunity for Meta, though, is in smart glasses. The company has already racked up a big win with its Ray-Ban Meta AI glasses. That partnership is going so well that Meta recently invested $3.5 billion in Ray-Ban maker EssilorLuxottica.
3. Nvidia
Nvidia (NVDA 2.13%) was on the outs with investors for a while, but that's no longer the case. Over the last three months, Nvidia's gains aren't too far behind Palantir's. But I think Nvidia has more room to run than Palantir does.
Importantly, Nvidia's top line is growing faster than Palantir's. In the first quarter of 2025, the graphics processing unit (GPU) maker reported year-over-year revenue growth of 69%. Palantir's revenue increased by 39% in its Q1.
NASDAQ: NVDA
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And while Nvidia isn't cheap by any stretch of the imagination, the stock is a bargain compared to Palantir. That's true even when growth prospects are factored into the equation. Nvidia's PEG ratio of 2.02 is less than half Palantir's PEG ratio of 4.41.
Will Nvidia's growth rate slow? Of course. However, the company's GPUs remain the gold standard in training and deploying AI models. Nvidia continues to invest heavily in research and development, with more powerful chips coming out each year. I suspect this AI stock will deliver higher returns over the next five years than Palantir will.
