Growth stocks, particularly those with strong ties to artificial intelligence, have been the frontrunners in the current bull market. But there are growing concerns we're in the midst of an AI bubble. With companies spending hundreds of billions every year building out AI infrastructure, valuations soaring, and a growing number of circular financing deals, we're seeing echoes of the dot-com bubble.
One of the biggest companies benefiting from the AI boom is Palantir (PLTR +3.06%). The company, which makes software enabling businesses and government agencies to use AI to make data-informed decisions, has seen its market cap soar from $13.4 billion at the end of 2022 to $450 billion as of this writing.
But few stocks may be as susceptible to air coming out of the AI trend as Palantir. And if the tides turn, value stocks may play a significant role in supporting investor portfolios in the future. One beaten-down value stock in particular looks well positioned to outperform and surpass Palantir in value as soon as next year.
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Can Palantir continue climbing in 2026?
Palantir has produced some very impressive financial results over the last few years. CEO Alex Karp has focused on key product improvements instead of trying to increase sales with more marketing. It's worked well. Revenue climbed 48% year over year in the second quarter, topping $1 billion. Moreover, operating margin expanded to 46% as overhead costs remain relatively stable.
Palantir's results have been supercharged by its artificial intelligence platform (AIP), which lets businesses add an LLM to the software and interact with it using natural language prompts. That's significantly lowered the learning curve for the software and helped more people get more out of it. As a result, businesses are finding more opportunities to use Palantir in their operations. Meanwhile, it continues to expand its government contracts, including a $10 billion deal with the U.S. Army it struck this summer.
NASDAQ: PLTR
Key Data Points
But the stock price may have gotten ahead of the reality of the business. Shares currently trade for a forward P/E ratio of about 292, which is an outrageous valuation for a company the size of Palantir (on track for about $1.9 billion in adjusted net income in 2025). Its price-to-sales ratio over 100 isn't much more appealing. It's no surprise that the vast majority of Wall Street's mostly optimistic sell-side analysts rate the stock a hold or sell.The median price target of $165 per share would translate into a market cap of about about $391 billion.
I expect one value stock to continue climbing higher over the next year and exceed that level.
The value stock that could outpace Palantir next year
Health insurance companies have experienced multiple headwinds weighing on their share prices this year, resulting in several values available for investors. One of the best of the bunch is UnitedHealth (UNH 0.93%), which also caught the eye of value investor Warren Buffett among others.
UnitedHealth, much like other insurers, is dealing with the reality of higher medical costs and higher utilization rates. But its exposure to those challenges on multiple fronts, as an insurer and care provider, has resulted in a tremendous strain on its profits.
Additionally, the entire industry faces regulatory pressure, but UnitedHealth looks particularly targeted. The company is under investigation from the Justice Department about its Medicare Advantage billing practices. If it's found to have provided less coverage than applicants deserved through the program, it could face a multibillion-dollar clawback of premiums. On top of that, the scale of its insurance and pharmacy benefits management businesses makes them targets for antitrust investigations or regulations that limit profits.
NYSE: UNH
Key Data Points
But there are reasons to be optimistic about the business. After resetting expectations amid the current headwinds, management updated its 2025 guidance along with its third-quarter earnings report. It raised the low end of its earnings outlook by $0.25 per share. Management also noted that the consensus analyst estimate for next year's earnings is a good starting point as it works to remediate its Medicare Advantage program with more appropriate pricing and benefit changes. Management also expects its Optum segment to show improved profit margins starting in 2027 after absorbing additional costs this year and next year.
With the stock currently trading for around 21 times 2026 earnings expectations, it's not the cheapest value stock, but it trades below its five-year average. If investors receive clarity on any of the factors weighing down the stock, that multiple could expand. And that, combined with a return to steady earnings growth after this year, could lead it to a valuation above $400 billion by the end of next year.
