The third year of Wall Street's bull market didn't disappoint. Throughout 2025, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all rallied to several record-closing highs.
However, it was an especially strong year for the Nasdaq-100, which comprises 100 of the largest non-financial companies listed on the Nasdaq stock exchange. When the final bell tolled in 2025, the Nasdaq-100 had advanced by a cool 20%!
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But just because the Nasdaq-100 has rallied more than 130% over the trailing three-year period, it doesn't mean each of its components is worth buying. The outlooks of the 100 companies that comprise this index vary significantly.
As we steam ahead into 2026, two Nasdaq-100 stocks make for no-brainer buys, while another highflier is worth avoiding.
The first Nasdaq-100 stock that makes for a no-brainer buy in 2026: Palo Alto Networks
Although several Nasdaq-100 components remain attractive in the new year, cybersecurity titan Palo Alto Networks (PANW -0.27%) stands out for all the right reasons. While it's not a cheap stock, based on the traditional forward price-to-earnings (P/E) ratio, it overcomes this potential headwind in a variety of ways.
On a macro basis, it provides a basic necessity service. While cybersecurity solutions may have once been optional, hackers don't take holidays just because Wall Street had a bad day. Protecting clouds and endpoint users from cyber threats is a 24/7 job that's agnostic to the performance of the U.S. economy or Wall Street. In other words, investors can expect predictable growth and operating cash flow year after year.
NASDAQ: PANW
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Palo Alto's success this decade stems from its shift away from physical firewall products and toward its artificial intelligence (AI)-driven software-as-a-service (SaaS) platforms. On top of its SaaS platforms being more nimble than on-premises solutions and capable of generating substantially higher margins, these next-generation threat detection solutions lead to more consistent sales and cash flow through recurring subscriptions. It's the perfect model for delivering sustained double-digit sales and earnings growth.
Palo Alto Networks' innovation is also helping it to land bigger fish. During the company's fiscal first quarter (ended Oct. 31, 2025), it had 169 companies generating at least $5 million in annual recurring revenue from its next-generation security software, which is up 54% from the previous year. In Palo Alto's case, securing larger clients has a significant (and positive) impact on its operating cash flow.
Don't overlook management's role in bolt-on acquisitions, either. Part of Palo Alto Networks' growth strategy has historically been to acquire smaller companies, enabling it to more rapidly expand its product and service portfolio and reach a broader audience of businesses.
Though Palo Alto is trading at 31 times projected cash flow for fiscal 2027, this represents a 23% discount to its average multiple to cash flow over the trailing five years.
Image source: Getty Images.
The second Nasdaq-100 stock that makes for a no-brainer buy in 2026: PayPal Holdings
For investors wanting a growth stock that's more of a traditional value candidate, fintech frontrunner PayPal Holdings (PYPL +1.01%) is the no-brainer buy in the new year.
Whereas the Nasdaq-100 gained 20% last year, PayPal stock fell by 32%. This 52-percentage-point underperformance reflects concerns about growing competition in the digital payment arena, as well as skepticism regarding PayPal's active user growth, which has been stagnant for multiple quarters. While PayPal does have growing pains to work through, many of its key performance indicators suggest its business is in great shape.
Excluding currency movements, total payment volume (TPV) on its digital payment platforms climbed 7% during the September-ended quarter, and has maintained high single-digit or low double-digit TPV growth for years.
More importantly, the average number of payment transactions per active account over the trailing 12-month period has risen by 41% to 57.6 between the end of 2020 and the third quarter of 2025. Put simply, active accounts have become more engaged with the platform over time.
NASDAQ: PYPL
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PayPal CEO Alex Chriss is also providing several reasons for long-term investors to jump aboard. In addition to reining in operating expenses, Chriss has emphasized PayPal's capital-return program, which features aggressive share buybacks and a newly implemented dividend. He's also promoting his company's innovative capabilities, which include leaning on AI and buy now, pay later services to increase average merchant ticket sizes.
Rounding things out, PayPal stock is historically cheap. Shares can currently be purchased for 10 times forward-year earnings, which represents a 40% discount to its average forward P/E multiple over the trailing half-decade.
The Nasdaq-100 stock that investors would be wise to avoid in the new year: Palantir Technologies
However, not every Nasdaq-100 stock is worth buying in 2026. Although shares of AI applications company Palantir Technologies (PLTR +1.60%) have gone parabolic since early 2023 (up 2,740% over the trailing three years), it's an easy avoid in the new year.
On the one hand, Palantir is a rock-solid company with a well-defined sustainable moat. Its two operating segments, Gotham and Foundry, lack large-scale competitors. This is especially true for Gotham, which is the AI- and machine learning-driven SaaS platform that enables the U.S. military to plan and oversee military missions. Investors have demonstrated a willingness to pay a premium for public companies with sustainable moats.
NASDAQ: PLTR
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The issue for Palantir Technologies is that there's a limit to how far this valuation premium can be stretched -- and it's far exceeded it.
Dating back to the proliferation of the internet in the mid-1990s, companies on the leading edge of next-big-thing technology trends have commonly topped out at price-to-sales (P/S) ratios ranging from 30 to 40. At no point over the last three decades has a P/S ratio of 30 for an industry-leading company been sustainable. Palantir ended the Jan. 7 trading session at a P/S ratio of 119! No sales guide or earnings beat can justify this level of premium.
Sticking with historical themes, every game-changing technological innovation over the last three decades has eventually endured a bubble-bursting event. Although demand for AI infrastructure is robust, most businesses aren't remotely close to optimizing this technology, and they likely won't be for years to come. If an AI bubble forms and subsequently bursts, as history suggests will happen in the presumed not-too-distant future, AI stocks with premium valuations, such as Palantir, would be hit hard.
It's an easy company to shy away from amid a historically pricey stock market.
