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ASML holds a technological monopoly in its space.
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Palantir's stock is incredibly expensive and ripe for a pullback.
Palantir Technologies (NASDAQ: PLTR) has been one of the hottest stocks in the market, rising an astounding 2,660% from the start of 2023 (not long after the AI arms race began to heat up) to now. As well as Palantir has done over that time, there's another AI stock that I like even more. And three years from now, it could easily be worth more than Palantir by then.
ASML (NASDAQ: ASML) is perhaps the most important company in the world that nobody knows about. With ASML's technology, the AI we know today wouldn't be possible. The stock has underperformed recently, trading off around 15.5% from its all-time high. I think ASML can recover from this drop and easily be worth more than Palantir three years from now, but it likely won't get there the way most investors think it will.
When I refer to ASML being worth more than Palantir, it may seem confusing because ASML's stock price is nearly $900 while Palantir's is $170. However, I'm not referring to the per-share price; I'm talking about its valuation, also known as a market cap. This is how much a company is worth when its stock price is multiplied by the total number of shares outstanding. Because a company can issue as many shares as it wants, the stock price tends to be less indicative of the true value of a company.
Palantir overtook ASML's market cap earlier this year, and it is now valued at nearly $420 billion versus ASML's almost $365 billion.
However, I'd argue that Palantir's $420 billion market cap isn't as solid as some might think. To reach that level, Palantir's stock valuation had to rise to unbelievable levels. It trades for 130 times sales and 275 times forward earnings.
Those are levels that few companies reach, and are partially based on irrational investor enthusiasm for Palantir's growth rates. In those rare instances where a stock achieved these valuation levels, it was usually correlated with a company doubling or tripling its revenue year over year each quarter. In Q2, Palantir's revenue rose 48% year over year. While that's impressive, it's a long way away from justifying these valuations or its stock price.
As a result, I think Palantir's stock is ripe for a significant pullback over the next three years, which would result in ASML again being considered more valuable.