Should You Forget Palantir and Buy These 2 Artificial Intelligence (AI) Stocks Instead?

Palantir Technologies has become one of the biggest names in artificial intelligence (AI), but the current boom is creating opportunities well beyond software. Broadcom (NASDAQ: AVGO) is providing hardware that could rival Nvidia's graphics processing units (GPUs), while Applied Digital (NASDAQ: APLD) is building the physical infrastructure that hyperscalers need to run it all. So for investors who are looking for promising AI bets other than Palantir, these two stocks deserve a closer look.

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Broadcom's custom AI chips are just getting started

Nvidia might dominate the conversation when it comes to GPUs, but Broadcom is becoming an increasingly important player in AI infrastructure.

Instead of competing head-on with Nvidia in general-purpose processors, Broadcom specializes in custom chips and networking technology that help some of the biggest companies build their own AI infrastructure. This puts it in a solid position with hyperscalers that are looking to develop chips specifically designed for their AI workloads.

The company is already working with major technology companies such as Alphabet, Meta Platforms, and OpenAI, positioning it at the center of the industry's growing demand for custom chips.

That demand is already translating into meaningful growth. The company's latest quarterly results showed AI semiconductor revenue more than tripling year over year, and management expects more acceleration in the current quarter.

The company also raised its longer-term AI revenue outlook, underscoring its confidence that hyperscalers' data center investments will continue to climb over the next several years.

But more importantly, Broadcom's opportunity extends beyond the chips themselves. Its networking technology is used to connect thousands of AI processors into huge computing clusters, giving the company exposure to multiple parts of the AI building boom.

Meanwhile, its established software business includes its VMware AI Factory, which makes it easier for customers to deploy and manage AI infrastructure, launch AI models faster, and improve cost efficiency through automation.

But chips are only part of the equation. As AI computing requirements continue to grow, the industry also needs to keep adding physical infrastructure. That's where Applied Digital comes into the picture.

Applied Digital is building the data centers powering AI

Applied Digital offers a different way to participate in the AI boom. Instead of designing chips or developing AI models, the company builds and runs the data centers that power AI workloads.

It has been expanding its portfolio of AI campuses, attracting major customers through long-term lease agreements that provide it with strong visibility into its future revenues. It has secured three deals with an investment-grade hyperscaler across different campuses, bringing its total contracted capacity to $36 billion.

Moreover, Applied Digital continues to make progress on its existing projects. Its Polaris Forge 1 campus in North Dakota has already kicked off operations, and additional capacity will keep coming online as construction continues. The company also secured further financing to expand its data center portfolio, helping turn its pipeline into operational facilities.

Another important development was its move to hive off its cloud services business into a new public company, ChronoScale (NASDAQ: CHRN). This will allow Applied Digital to focus more on developing and running large-scale AI campuses. That should help strengthen its business, especially as hyperscalers race to secure more computing capacity to train and run advanced AI models.

Although Broadcom and Applied Digital are in different parts of the AI supply chain, both stand to benefit from the huge investments being made in the technology.

Two different ways to invest beyond Palantir

For investors who want a steadier way to play the AI theme than Palantir offers, Broadcom's diversified chip and software business, along with its exposure to surging demand for custom AI chips and networking technology, makes it the safer of these two picks.

Applied Digital, on the other hand, is the higher-risk, higher-reward option, as it's betting big on building the data centers needed to power the next generation of AI.

Which one is the better choice for your portfolio likely depends on how much risk you're willing to take on.

Rick Orford has positions in Alphabet and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Broadcom, Meta Platforms, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.