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

Palantir Technologies (NASDAQ: PLTR) has undoubtedly been one of the big winners in artificial intelligence (AI). Its valuation has skyrocketed by more than 2,790% since the start of 2023. Its market cap of $441 billion makes it one of the most valuable companies in the world.

The problem, however, is that Palantir's business fundamentals don't support this outlandish stock valuation -- the stock trades at a price-to-earnings (P/E) multiple of more than 615. A correction could be coming soon.

I predict that by the end of next year, the following two AI stocks will become more valuable than Palantir.

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1. Alibaba Group

Alibaba Group (NYSE: BABA) is a top Chinese-based e-commerce company that's involved in tech and AI development. And lately, it's been picking up steam. At around $409 billion in market cap, it's not far behind Palantir. But given that their trajectories may be going in opposite directions in the year ahead, I think it can potentially blow past the data analytics stock in the not-too-distant future.

In addition to the stock looking reasonably cheap, trading at a P/E multiple of just under 21, Alibaba has also been experiencing explosive growth due to AI. While its top line rose by only 2% in the most recent quarter (it ended on June 30), the company noted that AI-related product sales were up in the triple digits for eight straight quarters.

Alibaba may still be in its early growth days with respect to AI, which makes it an exciting growth stock to buy right now. It has partnered with tech giant Apple to develop AI features for the company's iPhones. It's also working on developing its own AI chip and has its own AI chatbot (Qwen).

With so much growth on the horizon, it's little wonder why the stock has more than doubled in value this year. And if it can continue growing its AI business, this rally is likely to continue well into next year.

2. Advanced Micro Devices

One stock that's a bit further away in valuation is chipmaker Advanced Micro Devices (NASDAQ: AMD), whose market cap is around $370 billion. Its stock price is up over 88% this year as excitement has been building due to its close relationship with ChatGPT-maker OpenAI. The company recently announced it would be deploying 6 gigawatts' worth of AMD's GPUs over the next few years, and that through warrants, it may end up taking a 10% stake in the chipmaker as well.

For AMD, it's a big vote of confidence to have a leading AI company not only relying on its chips but also to potentially have a considerable stake in its business. AI investors have primarily been focusing on Nvidia as it is the dominant player in the AI chip market. But AMD may simply have been a bit late to the game, and as it has been rolling out new chips, its growth rate has been accelerating.

Through the first six months of the year, the company's net revenue has totaled $15.1 billion, which is an increase of 34% from the same period a year ago. That's a big improvement from last year, when its growth rate over the first two quarters was just under 6%.

At first glance, AMD looks like an expensive stock as its P/E multiple is a whopping 134. But when you look at its price-to-earnings growth multiple, which is well under 1.0, that suggests it may be a much better deal, particularly when you factor in analyst projections for long-term growth.

AMD's stock could be a much hotter buy next year, given its improving growth rate and close relationship with OpenAI. Although it has a long way to go to catch Palantir, with the stocks potentially going in opposite directions, I think it's entirely possible that it becomes the more valuable business by the end of next year.

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