Palantir shares continued their impressive rise in 2025.
Both Alibaba and AMD are well-positioned to accelerate revenue growth in key AI segments.
Their stock market valuations are much more attractive than those of Palantir, which allows them to outperform.
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After climbing 167% in 2023 and 340% in 2024, Palantir(NASDAQ:PLTR) the stock is on track to deliver another stellar return in 2025. Shares are up about 148% year to date and investors remain bullish on the artificial intelligence (AI) company. Its market capitalization of $448 billion now places it among the 25 most valuable publicly traded companies.
But smart investors focus on what the future holds rather than simply betting on yesterday’s winners. And two smaller AI companies could outperform Palantir in 2026, even reaching levels that would push their values beyond those of the growing tech giant by the end of next year.
Image source: Getty Images.
Palantir has experienced rare growth for a company of its size. In the software world, there is a popular concept known as the Rule of 40, which measures a company based on the sum of its revenue growth percentage and its operating margin percentage. A software company for which these two statistics combine for a number greater than 40 is considered investable based on its growth and profitability. Last quarter, Palantir reported revenue growth of 63% and an adjusted operating margin of 51%, giving it a Rule 40 rating of 114.
Palantir is profitable and growing faster than analysts expected. But after reporting strong third-quarter results, the market congratulated it by sending shares lower.
This speaks to the biggest challenge Palantir will face in 2026. Investors have already priced years of hoped-for future growth that far exceeds analysts’ published forecasts into its stock price. It trades at nearly 100 times analysts’ 2026 revenue forecasts and 250 times expected forward earnings. These are not rational valuations, so Palantir will need to deliver results well above expectations to get the stock out of there.
Many analysts have raised their price targets for Palantir this year, and the median of $200 is about 6% above its price at the time of this writing. However, most analysts maintain a Hold or Sell rating on the stock, indicating that they are not really convinced that it will go higher from here. I think there’s a good chance Palantir will take a step back in 2026 as investors begin to value the company more rationally.
Meanwhile, these two AI stocks could end up surpassing Palantir’s valuation by the end of the year.
Alibaba(NYSE:BABA) is much more than just a Chinese e-commerce giant. It is also the largest cloud infrastructure provider in China and is making excellent progress in artificial intelligence. Management says its AI services revenue grew at a triple-digit pace for the ninth consecutive quarter in the third quarter, increasing its total cloud revenue by 34%.
Alibaba faces a similar challenge to Western cloud computing giants: demand for AI services is outpacing its ability to build new data centers. This is despite the company investing 120 billion yuan (about $17 billion) in AI and cloud infrastructure over the past four quarters. Although management does not confirm the prospects of continued acceleration in the growth of the cloud business, it remains confident that its investments will bear fruit.
Retail continues to be a cash cow that can finance the expansion of its cloud infrastructure. As competitors eat into Alibaba’s dominant market share, it continues to increase sales. Investments in fast commerce, where goods are delivered within hours of ordering, have weighed on profitability but pushed revenue growth higher.
The market appears to be undervaluing Alibaba’s growth potential. Its forward P/E of less than 24 is much lower than other AI stocks. This significantly underestimates the growth of the cloud computing sector and the potential for its margins to increase as it scales. It could also overweight pressure on retail margins, as the market shifts towards faster trading and competitive pressure impacts its cash cow.
Alibaba currently has a market capitalization of $378 billion. If investors give it a higher earnings multiple and the company continues to grow in 2026, it could easily surpass Palantir’s market cap.
AMD(NASDAQ:AMD) is often thought of as a tool that also runs in the graphics processing unit (GPU) space. Nvidia has a clear lead in the market and its popular CUDA software platform has locked many developers into its architecture. But AMD is making excellent progress against Nvidia, and could accelerate its growth in the years to come.
In fact, management expects its data center revenue to grow by an average of 60% over the next three to five years, with annualized growth of 80% for AI-specific solutions. Overall, it plans to take at least 10% of the growing AI computing market, which is expected to reach $1 trillion by 2030. This growth is also expected to boost AMD’s gross margins, leading to even stronger profit growth.
AMD’s growth will come from increased spending on inference processing, where its hardware competes well with Nvidia’s GPUs and other players’ custom silicon solutions. Management claims its upcoming Instinct MI450 series will close the performance gap between it and Nvidia, based on technical specifications. And with its more advanced architecture, it could have an advantage in energy efficiency. The new chip marks an inflection point for AMD when it comes to AI performance.
As a result, management (and analysts) expect its earnings to significantly increase over the next couple of years. While AMD’s forward P/E ratio of around 55 is expensive, the stock trades at just 21 times expected earnings for 2027. If management’s long-term forecast of earnings of $20 per share by 2030 comes true, the stock appears to be an incredible bargain at the current price.
With a market cap of $360 billion today, AMD stock will need to have another good year to overtake Palantir. But the release of the MI450 could be the catalyst that propels the chipmaker ahead of the AI software giant.
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Adam Levy has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Advanced Micro Devices, Nvidia and Palantir Technologies. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
Prediction: These 2 artificial intelligence (AI) stocks will be worth more than Palantir by the end of 2026, was originally published by The Motley Fool
