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Palantir trades at a price-to-sales ratio that is extremely expensive.
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ASML has more revenue and better margins than Palantir.
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Hermès has superb margins and steady revenue growth that will help it outperform Palantir as an investment.
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10 stocks we like better than Palantir Technologies ›
Investors love Palantir Technologies (NASDAQ: PLTR). The software and artificial intelligence (AI) growth stock is up more than 300% in the last year, with its price soaring from under $10 in 2023 to about $180 today.
Too bad the stock trades at an unsustainable valuation. Its price-to-sales ratio (P/S) is 132, which all but guarantees poor stock returns over the next decade for this $400 billion market cap business.
Instead of chasing Palantir, investors should look at growth stocks with steady tailwinds that are also trading at reasonable valuations. Here are two stocks that should be larger than Palantir in five years that you can buy today.
A company that is perhaps poised to benefit even more from AI than Palantir is ASML Holding (NASDAQ: ASML). The Netherlands-based maker of computer chip manufacturing equipment is not a household name outside of small investing circles, but it is one of the most important companies in the semiconductor supply chain.
Without ASML and its lithography printing tools, advanced computer chips built for brands like Apple or Nvidia would be impossible to make. This has given ASML not only a large backlog as manufacturers try to catch up with AI chip demand, but also superb pricing power on its machine sales.
A new version of ASML’s lithography equipment reportedly is costing chipmakers $400 million. That shows how valuable the AI revolution is, and how important ASML is in the semiconductor supply chain powering it.
Five years from now, ASML is expecting to generate between 44 billion and 60 billion euros ($51 billion to $70 billion) in annual revenue. Palantir’s revenue is only $3.44 billion today and will come nowhere near $70 billion five years from now. Plus, ASML has better profit margin at 35% as measured by earnings before interest and taxes (EBIT) compared to Palantir’s 17%.
Both factors give ASML the edge as a potential investment today, and why I think it is likely that the semiconductor equipment company will have a larger market cap than Palantir in five years.
A company not associated with AI — and perhaps one of the few businesses immune to AI risks — is Hermès (OTC: HESAY). The maker of premier luxury handbags and leather goods is experiencing a steady drumbeat of growth that is relatively immune to the economic cycle. With a long history of catering to the ultra-wealthy with bags that go for $10,000 or more, Hermès enjoys significant pricing power because of the allure of its artisanal French leather goods.