2 AI Stocks I Don't Like (Including Palantir) and 1 I Love

Many software stocks have nosedived this year, helped by particularly aggressive declines last week, amid shifting market sentiment -- and artificial intelligence (AI) market darlings have not been immune to the pullback. Several popular growth companies from the past year suffered steep declines, with Palantir Technologies (NASDAQ: PLTR) and Snowflake (NYSE: SNOW) selling off especially hard last week.

Given the recent volatility, market participants might want to take a moment to consider if there are any good buying opportunities.

But don't rush to buy the dip.

Unfortunately, many of the beaten-down software stocks arguably still don't look attractive. In fact, I believe some of the hottest AI stocks of last year continue to have stretched valuations, in contrast to the more reasonable premium of a tech giant I think looks quite attractive today: Amazon (NASDAQ: AMZN).

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Palantir Technologies

In short, Palantir stock is a great business. But its stock still looks too expensive, and I am avoiding the recent dip.

Let me explain.

The AI platform provider's recent business performance has been exceptional. The data and analytics platform specialist reported fourth-quarter 2025 revenue of roughly $1.41 billion, which was up an explosive 70% year over year.

Digging deeper into the numbers, Palantir's U.S. commercial segment skyrocketed 137% year over year.

Management is clearly upbeat about the company's momentum.

The quarter was "nothing short of historic," said Palantir chief revenue and chief legal officer Ryan Taylor in the company's fourth-quarter earnings call.

"We are moving customers from AI adopters to AI-native enterprises, transforming execution into exponential advantage," Taylor said later during the call.

But does Palantir really deserve a price-to-earnings ratio of more than 200 and a forward price-to-earnings ratio of close to 100?

I don't think so.

The market seems to be pricing in flawless execution for the foreseeable future. If customer growth decelerates from these breakneck speeds, the stock could underperform for some time while fundamentals (hopefully) backfill.

Snowflake

Another stock I'm avoiding right now is Snowflake.

While Snowflake isn't growing as fast as Palantir, its growth rate is still impressive.

"Snowflake delivered another strong quarter with product revenue of $1.23 billion, up 30% year over-year, and remaining performance obligations totaling $9.77 billion, up 42% year-over-year," said CEO Sridhar Ramaswamy in the company's fiscal fourth-quarter earnings release.

But there is a glaring problem with the bull case at its current valuation: the company remains unprofitable. For its full-year fiscal 2026 results, Snowflake posted an operating loss of roughly $1.44 billion, including a $318.2 million operating loss in fiscal Q4 alone.

A primary contributor to its unprofitable business model is its heavy stock-based compensation, which continually weighs on the company's bottom line.

Despite the company not yet proving it can achieve a profitable business model, Snowflake commands a high market capitalization of about $42 billion as of this writing.

The market, therefore, has arguably already priced in a swing to substantial profitability that could still be years away.

Amazon

While I'm cautious about Palantir and Snowflake, one stock I love right now is Amazon.

The e-commerce and cloud computing behemoth closed out 2025 with fourth-quarter net sales rising 14% year over year to $213.4 billion.

Even more exciting, its cloud computing segment, Amazon Web Services (AWS), saw revenue jump 24% year over year to $35.6 billion. Highlighting just how big this cloud computing business has become, the segment has a run rate of $142.4 billion.

Of course, pursuing these AI opportunities requires staggering amounts of cash -- and that is a key risk for the stock. The company's free cash flow dropped from $38.2 billion in 2024 to $11.2 billion in 2025, driven primarily by a huge $50.7 billion year-over-year increase in capital expenditures to support AI infrastructure demand.

But I believe Amazon is well-positioned to bear this financial burden as it aggressively pursues opportunities in AI. If you look at the company's operating cash flow over the trailing 12 months, it was an incredible $139.5 billion, up 20% year over year.

And unlike the pure-play software names mentioned above, Amazon trades at a much more sensible valuation of about 33 times earnings. This is particularly attractive given the company's diversified, time-tested, and dominant business -- one strategically positioned to benefit from the AI boom.

Further, I'd rather buy a resilient business generating massive cash from operations than bet on expensive software stocks that seem to have best-case scenarios already priced in.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Palantir Technologies, and Snowflake. The Motley Fool has a disclosure policy.