Prediction: 2 Stocks That Will Be Worth More Than Palantir 5 Years From Now

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.

ASML's AI tailwind

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 European luxury giant

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.

Despite a slowdown in consumer spending in China and among its luxury peers, Hermès revenue grew 8% year over year last quarter to 8 billion euros ($9.4 billion). This was driven by 11% growth in Europe, 16% growth in Japan, and 12% growth in the Americas.

Asian markets excluding Japan, which is mostly China, grew just 3% year over year in the quarter. Once the Chinese economy stabilizes, Hermès may see accelerating revenue growth in the coming years because it is the largest market for luxury goods in the world.

The company has impressive pricing power, which gives it EBIT margins that surpass Palantir and ASML: 41% over the last 12 months. Revenue grows at a consistent pace due to the durable customer demand in the ultra-wealthy demographic, giving the company a revenue chart that looks like a subscription software company. Revenue has grown 218% over the last 10 years; I expect similar levels over the next 10.

With consistent revenue growth and far superior profit margins, Hermès should be a much larger company than Palantir five years from now, making it a better bet today.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Apple, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.