Palantir Vs. AMD: Is Either AI Stock a Buy Amid Valuation Concerns

With the broader market starting to retract amid valuation concerns, high-growth tech stocks such as Palantir PLTR and AMD AMD have been at the center of the pullback despite their enticing AI prospects.Palantir and AMD also took center stage this week after posting favorable AI-driven Q3 results that led to both innovative tech companies exceeding top and bottom line expectations and raising their guidance.However, PLTR and AMD shares have fallen over 10% this month as fears set in that their extensive year-to-date rallies may be overdone.Image Source: Zacks Investment Research AI-Growth Fuels Palantir & AMD’s Upgraded OutlookJumping into their guidance, Palantir raised its full-year revenue outlook from a range of $4.14–$4.15 billion to $4.39–$4.4 billion. The $250 million revenue upgrade was driven by explosive demand for Palantir's Artificial Intelligence Platform (AIP), which helped fuel a 63% yearly increase in Q3 sales at $1.18 billion. More intriguing, Palantir’s U.S commercial segment revenue surged over 120% during Q3 with AIP being in high demand by organizations that want to secure, deploy, manage, and scale AI applications. Notably, Palantir raised its Q4 revenue outlook from previous expectations of $1.19 billion to $1.33 billion. It’s also noteworthy that Palantir now expects its full-year adjusted operating income to exceed $2.15 billion and increased its full-year free cash flow target range to $1.9-$2.1 billion.  Image Source: Zacks Investment ResearchMeanwhile, AMD’s Q4 guidance reflects confidence in its expanding AI and data center businesses, even as it navigates geopolitical constraints like restricted chip shipments to China. While AMD didn’t formally lift its full-year revenue outlook or any other financial metric targets, the chip giant raised its Q4 sales guidance by $400 million from a previous forecast of $9.2 billion to $9.6 billion.This comes as AMD's AI chips and AI hardware systems (accelerators) led to record Q3 sales of $9.24 billion, a 35% increase from $6.81 billion a year ago. Other impressive Q4 highlights included record free cash flow of $1.53 billion, which stretched over 200% from the comparative quarter, as illustrated by the quarterly chart below.Image Source: Zacks Investment Research PLTR & AMD Valuation ConcernsAt current levels, PLTR trades at a very high forward earnings multiple of 266X, with AMD at a stretched 60X compared to the benchmark S&P 500’s 25X.Paying P/E premiums for high-growth tech stocks is to be expected, especially for Palantir, which went public in 2020 and is already profitable, but elevated price-to-sales ratios have drawn attention to the desire for more reasonable valuations. In this regard, AMD has a forward P/S ratio of 11X with the broader market at 5X, and Palantir is at an extreme 99X.Image Source: Zacks Investment Research What the Zacks Rank SuggestsCorrelating with a nice uptick in fiscal 2025 and FY26 EPS revisions, Palantir stock currently sports a Zacks Rank #2 (Buy). In that last week, Palantir’s FY25 and FY26 EPS estimates have spiked 10% and 20%, respectively. Indicating PLTR may be on track to grow into its lofty P/E valuation, Palantir’s annual EPS is now expected to soar 78% this year and is projected to increase another 43% in FY26 to $1.04.Image Source: Zacks Investment ResearchAs for AMD, which lands a Zacks Rank #3 (Hold), there hasn’t been much movement in FY25 EPS revisions over the last quarter, although FY26 EPS estimates have trended modestly higher and are up 2% in the last month from projections of $5.95 to $6.09. AMD’s bottom line is projected to stretch by high double digits for the foreseeable future as well, but the most revered short-term stock catalyst (increased EPS revisions) has been somewhat absent to suggest more upside after such an extensive YTD rally.Image Source: Zacks Investment Research Conclusion & Strategic ThoughtsFollowing their strong Q3 results, the market looks more likely to circle back and reward Palantir’s stock amid this week’s broader pullback. That said, the surge in both of these AI-focused companies' free cash flow is starting to make their long-term prospects more appealing regarding the operating leverage that should lead to increased profitability.Zacks' Research Chief Picks Stock Most Likely to "At Least Double"Our experts have revealed their Top 5 recommendations with money-doubling potential – and Director of Research Sheraz Mian believes one is superior to the others. Of course, all our picks aren’t winners but this one could far surpass earlier recommendations like Hims & Hers Health, which shot up +209%.See Our Top Stock to Double (Plus 4 Runners Up) >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Advanced Micro Devices, Inc. (AMD): Free Stock Analysis Report Palantir Technologies Inc. (PLTR): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks