Palantir‘S (NYSE:PLTR) Shares hit an all-time high of $51.13 on November 5. The 223% year-to-date rally has been driven by accelerating revenue growth, rising profits and their inclusion in stock prices. S&P500. The buying frenzy in AI stocks, expectations for lower interest rates and the market’s post-election rally boosted gains.
It’s easy to see why the bulls love Palantir. The analytics software company, which helps its government and commercial customers collect data from disparate sources to make smarter decisions, expects revenue to rise 26% this year – an acceleration from 17% growth in 2023 – as it remains profitable. Most of that growth will be driven by new government contracts, the robust growth of its U.S. commercial business and the expansion of its generative AI services.
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Analysts expect Palantir’s revenue and earnings per share (EPS) to grow at compound annual growth rates (CAGR) of 23% and 59%, respectively, from 2023 to 2026. But at 186 times expected earnings and 33 times next year’s revenue, the company’s frothy valuations could limit its upside potential.
Instead of chasing high-flying Palantir stock, investors should be buying Nvidia (NASDAQ: NVDA) And TSMC (NYSE: TSM) while their long-term AI plays instead?
Nvidia still looks cheaper than Palantir
Nvidia is the linchpin and driving force behind the AI market as it is the dominant producer of high-performance data center GPUs for processing AI tasks. The world’s leading AI companies – including OpenAI, Microsoft, Alphabet‘s Google, and Metaplatforms — they all run their AI applications on Nvidia’s GPUs.
The rising popularity of OpenAI’s ChatGPT and other generative AI applications led many companies to upgrade their data centers with Nvidia’s GPUs. As a result, market demand quickly exceeded the company’s available supply, prices and gross margins soared, and revenues skyrocketed. In fiscal 2024 (which ended in January), Nvidia’s revenue rose 126%, while adjusted earnings per share rose 288%.
Nvidia faces a number of long-term challenges. Many of its top customers are developing proprietary AI accelerator chips, its rival AMD is ramping up production of cheaper data center GPUs, and sales to China are being throttled by tighter export restrictions. His biggest customer Super microcomputer is also facing some tough questions due to the delayed 10-K filing, the auditor’s departure and a possible regulatory investigation.
But assuming Nvidia can overcome these challenges, analysts expect revenue and earnings per share to grow 51% and 56%, respectively, between fiscal 2024 and fiscal 2027 as the AI market grows. Based on these estimates, Nvidia trades at 39 times forward earnings and 20 times next year’s revenue, so it still looks like a cheaper and faster-growing play in the AI market than Palantir.
TSMC: A more balanced and diversified choice
TSMC is the world’s largest and most advanced contract chipmaker. It produces chips for ‘fabless’ chip makers – including Nvidia, AMD and Apple — that outsource their production to external foundries.
Over the past decade, TSMC has outpaced its two closest competitors, Samsung and Intelin the “process race” to manufacture smaller and denser chips. The company acquired this lead by taking over ASML‘s top-tier lithography systems (used to etch circuit patterns on silicon wafers) ahead of its competitors.
From 1997 to 2022, TSMC reduced the size of its chip manufacturing nodes from 300 nanometers (nm) to 3 nm. It plans to start mass production of its first 2nm chips next year.
That’s why TSMC is often considered the kingpin of the semiconductor market. The company experienced a cyclical slowdown in 2023 as the PC and smartphone markets cooled, but expects revenue to grow “nearly 30%” this year as it books large AI-driven orders from Nvidia, AMD and other chipmakers.
From 2023 to 2026, analysts expect TSMC’s revenue and earnings per share to grow at a CAGR of 25% and 28%, respectively, as the company produces even smaller and more powerful chips. Those are high growth rates for a stock that trades at just 18 times forward earnings and 8 times next year’s sales. Like Nvidia, TSMC could be a good alternative to Palantir for AI-oriented investors who want a more balanced growth stock.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Leo Sun has positions in ASML, Apple and Meta Platforms. The Motley Fool holds positions in and recommends ASML, Advanced Micro Devices, Alphabet, Apple, Intel, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long calls in January 2026 for $395 at Microsoft, short calls in January 2026 for $405 at Microsoft, and short calls in November 2024 for $24 at Intel. The Motley Fool has a disclosure policy.
