PalantirIt is (PLTR 1.75%) the stock hit a record high of $51.13 on November 5. Its 223% year-to-date rally is due to accelerating revenue growth, surging profits and market inclusion. S&P500. The AI ​​stock buying frenzy, rate cut expectations and post-election market rally amplified its gains.

It’s easy to see why the bulls like Palantir. The analytics software company, which helps government and commercial customers bring together data from disparate sources to make smarter decisions, expects its revenue to grow 26% this year – an acceleration from its growth of 17% in 2023 – while remaining profitable. Most of this growth will be driven by new government contracts, the strong growth of its commercial activities in the United States and the expansion of its generative AI services.

Image source: Getty Images.

From 2023 to 2026, analysts expect Palantir’s revenue and earnings per share (EPS) to grow at compound annual growth rates (CAGR) of 23% and 59%, respectively. But at 186 times forward earnings and 33 times next year’s sales, the company’s frothy valuations could limit its upside potential.

Instead of Chasing Palantir’s High-Flying Stock, Should Investors Buy Nvidia (NVDA -0.54%) And TSMC (TSM -3.05%) like their long term AI plays instead?

Nvidia still seems cheaper than Palantir

Nvidia is the pillar and barometer of the AI ​​market, as it is the dominant producer of high-end data center GPUs for processing AI tasks. The world’s largest AI companies, including OpenAI, Microsoft, Alphabetit’s Google, and Metaplatforms — all run their AI applications on Nvidia GPUs.

The growing popularity of OpenAI’s ChatGPT and other generative AI applications has driven many companies to upgrade their data centers with Nvidia GPUs. As a result, market demand quickly outstripped the company’s available supply, its prices and gross margins soared, and its revenue skyrocketed. In fiscal 2024 (which ended in January), Nvidia’s revenue soared 126% while its adjusted EPS jumped 288%.

Nvidia faces long-term challenges. Many of its major customers are developing premium AI accelerator chips, its rival AMD East rise in power its production of cheaper data center GPUs and sales to China are limited by tighter export restrictions. Its main customer Super microcomputer also faces some difficult questions in the midst of his delayed 10-K filing, his departure of the auditorand a possible regulatory investigation.

But assuming Nvidia overcomes these challenges, analysts expect revenue and EPS to grow at a CAGR of 51% and 56%, respectively, from fiscal 2024 to fiscal 2027, as the AI market is growing. Based on these estimates, Nvidia trades at 39 times forward earnings and 20 times next year’s sales. So it still seems to be a cheaper and faster growing play in the AI ​​market than Palantir.

TSMC: A more balanced and diversified choice

TSMC is the world’s largest and most advanced contract chip manufacturer. It makes chips for “fabless” chipmakers, including Nvidia, AMD and Apple — who subcontract their production to third-party foundries.

Over the past decade, TSMC has outpaced its two closest competitors, Samsung and Intelin the “process race” to make smaller, denser chips. He took this lead by adopting ASML‘s leading lithography systems (used to etch circuit patterns onto silicon wafers) ahead of its competitors.

From 1997 to 2022, TSMC reduced the size of its chip manufacturing nodes from 300 nanometers (nm) to 3 nm. It plans to start mass producing its first 2nm chips next year.

This is why TSMC is often considered the kingpin of the market. semiconductor market. It suffered a cyclical slowdown in 2023 due to cooling PC and smartphone markets, but it expects its revenue to rise “nearly 30%” this year thanks to the booking of large orders based on AI from Nvidia, AMD and other chipmakers.

From 2023 to 2026, analysts expect TSMC’s revenue and EPS to grow at a CAGR of 25% and 28%, respectively, as the company makes even smaller and more powerful chips. These are high growth rates for a stock that trades at just 18 times forward earnings and 8 times next year’s sales. Like Nvidia, TSMC could be a good alternative to Palantir for AI-oriented investors who want a more balanced growth stock.