Prediction: 2 Stocks That Will Be Worth More Than Palantir 1 Year From Now

Palantir Technologies (NASDAQ: PLTR) has been one of the best-performing stocks of the artificial intelligence (AI) era. Even after a recent pullback, the software stock known for its focus on defense and counterterrorism is up 1,410% since the start of 2023. That growth has been largely driven by the emergence of its artificial intelligence platform (AIP), which it launched in 2023. AIP has unleashed the power of its deep data mining software and further differentiated its software from alternatives, allowing its customers to dramatically accelerate their workflows.

Palantir's revenue growth has now accelerated for six straight quarters, and its operating margin has improved for eight consecutive quarters, excluding a one-time stock grant in the fourth quarter. While Palantir's business continues to look impressive, the growth in the stock has dramatically outpaced the business, and its valuation is significantly higher than its software and AI peers. Palantir stock now trades at a price-to-sales ratio of 78. The valuation could get cut in half and Palantir would still be one of the most expensive stocks on the market.

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Meanwhile, this $213 billion company does face real risks. A new administration is looking to trim the budget of the U.S. government and an economic slowdown or a recession could lower demand from commercial customers. Additionally, geopolitical tensions could drive away European customers or further cool off growth in that region. Palantir is vulnerable to a pullback due to its valuation and the risks outlined here.

As an investor, if you are uncomfortable with the risks and high valuation, there are two stocks well-positioned to be more valuable than Palantir in the next year you might want to consider instead.

Image source: Getty Images.

1. Advanced Micro Devices

Advanced Micro Devices (NASDAQ: AMD) has been a top semiconductor stock to own over the last decade, but more recently its performance has been disappointing as its MI300 AI accelerator has failed to gain significant market share from Nvidia, underwhelming investors. Over the last year, the stock has fallen 38% in part because those high hopes for its data center GPUs seem to have gone unfulfilled.

However, despite the weakness in the stock, the business results are solid. In the fourth quarter, revenue rose 24% to $7.7 billion, and adjusted operating income was up 43% to $2.03 billion.

AMD's fourth-quarter data center revenue jumped 69% year over year to $3.9 billion, though the company spooked investors by forecasting a quarter-over-quarter decline in data center revenue in the first quarter. Nonetheless, the company remains optimistic about AI growth over the long term. It's also performing well in the PC-focused client segment with revenue up 58% in the fourth quarter to $2.3 billion.

With a diversified set of products, a proven management team guided by CEO Lisa Su, and tailwinds expected in AI, AMD still seems well positioned for long-term growth, and the stock looks like a bargain at a forward P/E of just 23. Management will need to execute, but at a market cap of $184.5 billion, the stock only needs to appreciate 16% to top Palantir's current market cap. That looks like an achievable goal for AMD.

2. Intuitive Surgical

Like AMD, Intuitive Surgical (NASDAQ: ISRG) has also been a top stock to own. It has delivered steady growth thanks to its razor-and-blades business model built on its da Vinci surgical robot.

The da Vinci excels at minimally invasive surgeries such as gynecological, urological, head and neck, colorectal, and other procedures. Because the cuts it makes are smaller than conventional surgery, it's less traumatic on the body and offers a shorter recovery time and less pain for patients.

The success of that robotic system has driven steady growth for the company quarter after quarter with total procedures up 18% in the fourth quarter, driving 25% revenue growth to $2.41 billion.

The company's installed base continues to grow as well, up 15% year over year in Q4 to 9,902, which will drive growth of the high-margin consumables required to use the surgical system.

Intuitive Surgical stock trades down more than 20% from its post-earnings peak, but it's still expensive at a price-to-earnings ratio. However, the medical device maker deserves a premium as it's one of the most reliable growth stocks on the market. As a healthcare stock, it should be more insulated from recession risk and concerns about a potential AI bubble than Palantir.

At a market cap of $182.2 billion, it's on par with AMD and looks like a good bet to keep climbing and top Palantir over the next year.

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Jeremy Bowman has positions in Advanced Micro Devices and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Intuitive Surgical, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.