Few companies have benefited more from the race to harness the power of generative artificial intelligence (AI) than Palantir Technologies (PLTR +0.01%). The stock has climbed roughly 2,300% since OpenAI released ChatGPT in late 2022. It now sports a market cap of around $424 billion, as of this writing.
Despite its incredible momentum, Palantir might not be the best AI stock to buy right now. I've identified two other opportunities in the AI space that could be worth more than Palantir by the end of 2026. Here's what investors need to know.
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Can Palantir keep climbing higher?
Palantir has seen its operating results improve dramatically since releasing its Artificial Intelligence Platform (AIP) in 2023. The platform allows businesses and governments to add a large language model to Palantir's data ontology software, enabling them to interact with it using natural language. That's allowed more people to use the software more effectively, expanding its use cases and demand.
The financial results are clear. In its most recent quarter, Palantir saw total revenue climb 48% year over year while producing an adjusted operating margin of 46%. It's showing even stronger results in its U.S. commercial sales (up 93% year over year), and its remaining deal value is climbing even faster, suggesting it's winning bigger and longer contracts from enterprise customers.
NASDAQ: PLTR
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But the biggest concern with investing in Palantir is its stock valuation. The shares trade at an enterprise value to EBITDA multiple of 221 based on forward estimates. Its price-to-sales ratio exceeds 100 times forward estimates. To say Palantir stock is expensive would be an understatement. For shares to fall back to a valuation resembling anything else in the S&P 500, it would have to grow revenue 50% per year for the next four years without any increase in its share price. It's no surprise then that the average price target on Wall Street for the stock is $155, roughly 14% below its current stock price.
There are two other companies that offer much more attractive valuations with strong growth from AI demand.
1. Alibaba
Alibaba (BABA 2.43%) is well known for its global e-commerce platform, which has come under threat from smaller competitors over the last few years. Companies, including PDD Holdings and ByteDance, have successfully carved out a share of e-commerce with social commerce features, extremely low pricing, and aggressive market expansion (both domestically and internationally).
But e-commerce remains a huge profit center for the Chinese company, which has helped fuel its massive investments in AI. Alibaba's cloud intelligence group is the largest cloud computing provider in China. The segment climbed 26% year over year, last quarter, accelerating from 18% growth in the quarter before. That growth was backed by an eighth consecutive quarter of triple-digit growth in AI-related revenue.
NYSE: BABA
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Alibaba is spending heavily to keep up with demand. At the start of the year, it committed to spend $53 billion between 2025 and 2027 on AI infrastructure. It's also developing its own custom AI accelerators, which could prove an enormous advantage as the Chinese government cracks down on using Nvidia's GPUs. Its open-source Qwen AI models are also another big draw to its cloud platform.
The cloud business is thriving, but many investors may have trouble looking past the relatively stagnant e-commerce business. As a result, the stock sports an enterprise value to EBITDA multiple of just 15.6, as of this writing. With the strength of its AI business carrying its results going forward, investors are getting a bargain right now. Alibaba's current market cap of $400 billion could climb substantially higher by the end of 2026, surpassing Palantir's.
2. ASML
As demand for leading-edge silicon grows, chip manufacturers need high-end equipment for fabrication. ASML (ASML 1.47%) is the leading lithography equipment provider. Its tools enable manufacturers to print the precise details needed to make the most advanced chips on the market. It's currently the only company providing extreme ultraviolet (EUV) machines, which are necessary for the most advanced chip designs.
ASML's technology lead benefits from a virtuous cycle. Since it has a much larger revenue base than its competitors, it can invest more in research and development. In turn, it can produce more advanced machinery and win more market share. ASML also benefits from high switching costs. Its machines are extremely expensive and require foundries to plan layouts specifically for its machinery. That also ensures it maintains a steady amount of service revenue every year.
NASDAQ: ASML
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Shares of ASML took a hit earlier this year when management said there was too much uncertainty for forecast demand for 2026. That may have been tied to a new strategy at Intel that it would stop investing in its foundry business if it didn't attract a big external customer. A loss of Intel would significantly hurt ASML, but long-term demand for chips continues to rise, and another foundry would likely pick up any lost business over time. That said, a recent deal between Intel and Nvidia may have strengthened the outlook for the U.S. foundry.
Shares of ASML have since recovered from the dip, and now trade at a forward PE of about 34. But ASML is seeing strong revenue growth, up 34% through the first six months of the year. On top of that, it has a lot of potential for margin expansion as it sells more EUV machines and charges more for servicing them. As a result, the stock could still climb higher from here. With a market cap around $380 billion, it's another company that could overtake Palantir's market value by the end of next year.
