Palantir vs. Alibaba & ASML: Which AI Investment Will Prevail?

Palantir Faces New Challengers in the AI Arena

Few companies have benefited more from the generative artificial intelligence (AI) boom than Palantir Technologies (PLTR). The stock has soared roughly 2,300% since OpenAI released ChatGPT in late 2022, now boasting a market cap around $424 billion. However, does this automatically make Palantir the best AI investment right now? Despite its incredible momentum, two other opportunities in the AI space could be worth more than Palantir by the end of 2026. Let's delve into these alternatives and explore what investors need to know.

Can Palantir Keep Climbing Higher?

Palantir's operating results have improved dramatically since releasing its Artificial Intelligence Platform (AIP) in 2023. The platform allows businesses and governments to add a large language model to Palantir's data ontology software, enabling interaction using natural language. This has broadened the software's usability, expanding its applications and demand. The financial results speak for themselves. In its most recent quarter, Palantir saw total revenue climb 48% year over year, producing an adjusted operating margin of 46%. Its U.S. commercial sales are showing even stronger results (up 93% year over year), and its remaining deal value is climbing even faster, suggesting it's winning larger and longer contracts from enterprise customers.

Concerns About Palantir's Valuation

The biggest concern with investing in Palantir lies in its stock valuation. Shares trade at an enterprise value to EBITDA multiple of 221 based on forward estimates. Its price-to-sales ratio exceeds 100 times forward estimates. Calling Palantir stock expensive is an understatement. For shares to revert to a valuation resembling anything else in the S&P 500, it would have to grow revenue 50% per year for the next four years without any increase in its share price. It's no surprise then that the average price target on Wall Street for the stock is $155, roughly 14% below its current stock price.

Compelling Alternatives: Alibaba and ASML

Two other companies offer much more attractive valuations with strong growth from AI demand:

1. Alibaba

Alibaba is well-known for its global e-commerce platform, which has faced threats from smaller competitors in recent years. Companies like PDD Holdings and ByteDance have successfully carved out e-commerce share with social commerce features, extremely low pricing, and aggressive market expansion (domestically and internationally). However, e-commerce remains a massive profit center for the Chinese company, fueling its substantial investments in AI. Alibaba's cloud intelligence group is the largest cloud computing provider in China. The segment climbed 26% year over year last quarter, accelerating from 18% growth the quarter before. This growth was backed by eight consecutive quarters of triple-digit growth in AI-related revenue. Alibaba is spending heavily to keep pace with demand. At the start of the year, it committed to spend $53 billion between 2025 and 2027 on AI infrastructure. It's also developing its own custom AI accelerators, which could prove an enormous advantage as the Chinese government cracks down on the use of Nvidia's GPUs. Its open-source Qwen AI models are also a significant draw to its cloud platform. The cloud business is thriving, but many investors may struggle to look past the relatively stagnant e-commerce business. As a result, the stock sports an enterprise value to EBITDA multiple of just 15.6. With the strength of its AI business driving its results going forward, investors are getting a bargain right now. Alibaba's current market cap of $400 billion could climb substantially higher by the end of 2026, surpassing Palantir's.

2. ASML

As demand for leading-edge silicon grows, chip manufacturers need high-end fabrication equipment. ASML is the leading lithography equipment provider. Its tools enable manufacturers to print the precise details needed to make the most advanced chips on the market. It's currently the only company providing extreme ultraviolet (EUV) machines, which are necessary for the most advanced chip designs. ASML's technology lead benefits from a virtuous cycle. With a much larger revenue base than its competitors, it can invest more in research and development. This, in turn, allows it to produce more advanced machinery and win more market share. ASML also benefits from high switching costs. Its machines are extremely expensive and require foundries to plan layouts specifically for its machinery. This ensures it maintains a steady amount of service revenue every year. Shares of ASML took a hit earlier this year when management cited too much uncertainty regarding forecast demand for 2026. This may have been tied to a new strategy at Intel to halt investment in its foundry business if it failed to attract a major external customer. Losing Intel would significantly hurt ASML, but long-term demand for chips continues to rise, and another foundry would likely pick up any lost business over time. That said, a recent deal between Intel and Nvidia may have strengthened the outlook for the U.S. foundry. Shares of ASML have since recovered from the dip and now trade at a forward PE of about 34. However, ASML is experiencing strong revenue growth, up 34% through the first six months of the year. Furthermore, it has substantial potential for margin expansion as it sells more EUV machines and charges more for servicing them. As a result, the stock could still climb higher from here. With a market cap around $380 billion, it's another company that could overtake Palantir's market value by the end of next year.