Prediction Markets Are All the Rage, but This AI Stock Is a Much Better Investment

One of the market stories dominating the headlines over the past year has been prediction markets/betting apps. I'm sure you've seen ads for Kalshi, Polymarket, and DraftKings.

The first time I heard of Polymarket was during the 2024 presidential election, when it became one of the indicators people used to predict who would win. Now, companies like Robinhood and Interactive Brokers have joined the party.

You can accuse me of being too conservative an investor or a bit of a dinosaur when it comes to new trends, but I'm a natural skeptic and don't like investing in a new development until it's had a couple of years to play out and prove itself as something worthwhile.

It took me about a year to give most artificial intelligence (AI) companies a serious look, but that trend has more than proved itself to be a durable one despite fears of an AI bubble.

I'd say skip the prediction market hype and instead consider one of the most dynamic AI companies on the market, Palantir Technologies (NASDAQ: PLTR).

Image source: Getty Images.

A popular platform

Palantir offers five software platforms, most notable among them Gotham and AIP. All its platforms allow users to link together vast networks to see and communicate between all the devices on the network using AI.

Gotham, for example, allows a military commander to see and hear everything captured by all the devices the software connects to, from a bodycam worn by an individual soldier to a satellite in orbit over the battlefield. You don't need to know much about military history to see how such a tool would be invaluable to a general.

The U.S. government has been Palantir's largest customer for a while now. In that way, Palantir represents a unique hybrid of an AI software company and a defense contractor.

But in 2023, Palantir released its Artificial Intelligence Platform (AIP), which allows its users, both public and private, to integrate large language models and other AI programs into their networks to build custom AI agents and automate workflows.

Since then, Palantir AIP has seen adoption by BP, Lowe's, Lockheed Martin, the British Ministry of Defense, and many other clients around the world. Today, the commercial adoption of its platforms is the fastest-growing revenue stream for Palantir.

A growth machine

Speaking of revenue, let's take a look at Palantir's latest results. They support my argument for the stock beautifully.

For 2025, Palantir generated revenue of $4.48 billion, up 56% over 2024. Of that, the bulk came from the United States, where U.S. commercial revenue grew 109% over 2024 to hit $1.47 billion, and U.S. government revenue grew 55% over 2024 to total $1.85 billion. Palantir has beat analysts' earnings estimates for four quarters in a row, beating Q4 estimates by 8.6%

The company's customer count grew 34% year over year to hit 954 by the end of last year. Of that number, 780 were commercial, and that figure grew 37% over the same time frame. In Q4 2025 alone, the company closed 180 deals of $1 million or more, with 84 of those deals worth $5 million or more, and of those, 61 were worth $10 million or more.

Finally, Palantir offers two things I love to see. First, it has vast cash, cash equivalents, and U.S. Treasury securities of $7.2 billion with negligible debt. Second, the company is incredibly profitable and managed an operating margin of 50% for 2025.

Now, it must be noted that Palantir's trailing price-to-earnings (P/E) ratio is high. Right now it's 230, and its forward price-to-earnings ratio (based on estimated earnings) is 119. However, when you factor in the company's growth to get the price/earnings-to-growth ratio (PEG), it comes out to 3.24 at present, which is lower than the PEG of 5 it maintained through 2024 and 2025. So, while the P/E is high, I do think it's offset by Palantir's positively ballistic growth rate.

A PEG of over 3 is still high, but given that Palantir is growing much faster than Wall Street's projections for it quarter after quarter, and its 56% revenue growth in 2025, I don't think it's too big of an issue, not in the short term at least.

If Palantir's revenue and earnings growth slow down it's another story, though.

So, while you're waiting to see if prediction markets or sports betting apps will play out into durable trends, consider investing in Palantir. There's still plenty of money to be made off of AI.

James Hires has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Interactive Brokers Group, Microsoft, and Palantir Technologies. The Motley Fool recommends BP, Lockheed Martin, and Lowe's Companies and recommends the following options: long January 2027 $43.75 calls on Interactive Brokers Group and short January 2027 $46.25 calls on Interactive Brokers Group. The Motley Fool has a disclosure policy.