Prediction: These 2 Artificial Intelligence (AI) Stocks Will Be Worth More Than Palantir by the End of 2026

After climbing 167% in 2023 and 340% in 2024, Palantir (NASDAQ: PLTR) stock is on course to deliver another stellar return in 2025. Shares are up by about 148% year to date, and investors remain optimistic about the artificial intelligence (AI) company. Its market cap of $448 billion now puts 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 push their values beyond that of the soaring tech giant by the end of next year.

Image source: Getty Images.

How high can Palantir climb in 2026?

Palantir has been growing at a rare pace 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 those two statistics combine for a number above 40 is deemed investable based on its growth and profitability. Last quarter, Palantir produced revenue growth of 63% and an adjusted operating margin of 51%, giving it a Rule of 40 score of 114.

Palantir is profitable, and it's growing faster than analysts anticipated. But after it reported stellar third-quarter earnings, the market congratulated it by sending shares lower.

That speaks to the biggest challenge facing Palantir in 2026. Investors have already baked years of hoped-for future growth that's well in excess of published analysts' forecasts into its stock price. It trades for almost 100 times analysts' revenue expectations for 2026 and a whopping 250 times expected forward earnings. These are not rational valuations, so Palantir will have to deliver results that are far above expectations to lift the stock from here.

Many analysts raised their price targets for Palantir this year, and the median of $200 is about 6% above its price as of this writing. However, most analysts maintain either a hold or sell rating on the stock, indicating they don't have a lot of confidence that it will move higher from here. I think the odds are good that Palantir will take a step back in 2026 as investors start to value the company more rationally.

Meanwhile, these two AI stocks could end up surpassing Palantir's valuation by the end of the year.

1. Alibaba

Alibaba (NYSE: BABA) is more than just a Chinese e-commerce giant. It's also the largest cloud infrastructure provider in China, and it's making excellent progress in artificial intelligence. Management says its AI services revenue grew at a triple-digit pace for the ninth consecutive quarter in Q3, pushing its total cloud revenue 34% higher.

Alibaba faces a challenge similar to Western cloud computing giants: Demand for AI services is outpacing its ability to build new data centers. That's despite the company's investing 120 billion yuan (approximately $17 billion) into AI and cloud infrastructure over the past four quarters. While management wouldn't confirm an outlook for continued acceleration in the growth of the cloud business, it remains highly confident its investments will pay off.

The retail business continues to be a cash cow that can fund the expansion of its cloud infrastructure. While competitors have been eating into Alibaba's dominant market share, it continues to grow its sales. Investments in quick commerce, where goods are delivered within a few 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 under 24 is well below those of other AI stocks. It heavily discounts the growth of the cloud computing business and the potential for its margins to expand as it scales. It may also over-weight the margin pressure on the retail business as the market pushes toward more quick commerce and competitive pressure impacts its cash cow.

Alibaba currently sports a market cap of $378 billion. If investors bestow a higher earnings multiple upon it, and the company continues to grow in 2026, it could easily surpass Palantir's market cap.

2. AMD

AMD (NASDAQ: AMD) is often thought of as an also-ran in the graphics processing unit (GPU) space. Nvidia has a clear market lead, and its popular CUDA software platform has locked many developers into its architecture. But AMD is making excellent progress competing with Nvidia, and it could accelerate its growth over the coming years.

In fact, management expects its data center revenue growth to average 60% over the next three to five years, with AI-specific solutions projected to grow at an annualized rate of 80%. Overall, it anticipates taking at least 10% of the growing AI compute market, which it expects to reach $1 trillion by 2030. That growth should also push AMD's gross margins higher, leading to even stronger earnings growth.

AMD's growth will stem from an increase in spending on inference processing, where its hardware competes well with Nvidia's GPUs and other players' custom silicon solutions. Management claims its forthcoming Instinct MI450 series will close the performance gap between it and Nvidia, based on technical specifications. And with its more advanced architecture, it may have a power-efficiency advantage. The new chip marks an inflection point for AMD with regard 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 for only 21 times expectations for 2027 earnings. If management's long-term forecast for earnings of $20 per share by 2030 comes to fruition, the stock looks like an incredible bargain at today's price.

With a market cap of $360 billion today, AMD shares will need to have another strong year to surpass Palantir. But the MI450 release could be the catalyst that pushes the chipmaker ahead of the AI software giant.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Palantir Technologies. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.