Palantir (PLTR +1.25%), a developer of data mining and analytics services for government agencies and enterprise clients, went public via a direct listing in September 2020. It started trading at $10, but it's worth about $150 per share as of this writing.
From 2021 to 2025, Palantir's revenue tripled from $1.5 billion to $4.5 billion. It also turned profitable in 2023, and its net income rose nearly eightfold to $1.6 billion over the following two years. That explosive growth was fueled by new contracts for the U.S. government and the expansion of its commercial business. By aggregating data from disparate sources, Palantir helps those clients spot trends, predict outcomes, and make more informed decisions.
Image source: Getty Images.
From 2025 to 2028, analysts expect Palantir's revenue and EPS to grow at CAGRs of 49% and 53%, respectively. The growth of its U.S. commercial business, new U.S. government contracts to address intensifying geopolitical conflicts, and the expansion of its AI platform (for creating custom apps) will likely drive that expansion. Based on those facts, Palantir might seem like a once-in-a-decade play on the booming AI market. But at $150 per share, it's richly valued at nearly 140 times forward earnings and more than 50 times this year's sales.
While Palantir's business is firing on all cylinders, investors should wait for its valuations to cool off before pulling the trigger. In the meantime, they should consider buying another hot AI stock trading at more reasonable valuations: Broadcom (AVGO 1.63%). Let's see why this diversified chip and software maker might be a better long-term opportunity than Palantir.
NASDAQ: PLTR
Key Data Points
How fast is Broadcom growing?
In 2016, the Singapore-based chipmaker Avago acquired its rival Broadcom and retained its more well-known brand. After that acquisition, the "new" Broadcom sold a wide range of chips for the mobile, data center, networking, wireless, storage, and industrial markets. It also expanded into the infrastructure market by acquiring several large companies, including CA Technologies, Symantec's security division, and the cloud software giant VMware.
NASDAQ: AVGO
Key Data Points
From fiscal 2021 to fiscal 2025 (which ended last November), Broadcom's revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) grew at CAGRs of 24% and 27%, respectively. In fiscal 2025, it generated 58% of its revenue from its semiconductor solutions segment and the remaining 42% from its infrastructure software.
That unique combination gives Broadcom an edge against other stand-alone chipmakers and software makers. It can bundle its chips and infrastructure software services, and its stable software sales can offset cyclical headwinds in its semiconductor business. It also reduced Broadcom's dependence on its top chip customer Apple (AAPL 1.93%), which accounted for about a fifth of its sales before the expansion of its infrastructure software business.
What are Broadcom's long-term catalysts?
Unlike Nvidia (NVDA 1.53%) and AMD (AMD 3.46%), Broadcom doesn't produce powerful general-purpose data center GPUs for the booming AI market. Instead, it produces application-specific integrated circuits (ASICs) to accelerate AI applications. ASICs can be customized for specific AI tasks, making them ideal for large hyperscalers -- including Meta and Alphabet's Google -- that want to expand their data centers with custom chips rather than rely on Nvidia.
In fiscal 2025, Broadcom's total AI chip sales soared 65% to $20 billion, accounting for more than 31% of its top line. That growth offset its slower sales of non-AI chips and infrastructure software, which are more heavily exposed to the macro headwinds. By the end of fiscal 2027, it aims to generate $60-$90 billion in annualized AI chip revenue.
From fiscal 2025 to fiscal 2028, analysts expect Broadcom's revenue and adjusted EBITDA to both grow at a 45% CAGR as its AI chip business expands. That acceleration suggests that buying Broadcom today could be comparable to investing in Nvidia (NVDA 1.53%) before its data center GPU business overtook its gaming GPU business as its primary revenue source.
With an enterprise value of $1.66 trillion, Broadcom trades at just 16 times this year's sales and 23 times its adjusted EBITDA. Therefore, I believe it could have much more upside than Palantir and other hot AI stocks in this choppy market.
