Palantir (NASDAQ:PLTR) has delivered parabolic gains over the past two years and there seems to be no end in sight to how high it could go. The trailing price-earnings multiple of 649 is a record high among the big software companies, so investors do not seem worried at all about the fundamentals. Instead, they are betting on DOGE and continuous government contracts that could push up sales beyond analyst expectations. And if Wall Street keeps holding up the massive premium, PLTR stock could theoretically deliver significantly more gains from more.
Super Micro Computer (NASDAQ:SMCI) started off in a similar fashion and exploded in value, but the music stopped in early 2024 and it declined significantly from there due to concerns about its books being cooked. However, Wall Street has warmed up to it significantly as the company has been solving these problems one by one and announced solid preliminary Q2 FY2025 financial information. Let’s look into both of these companies to see which one is a better buy right now.
If we look at fundamentals, it wouldn’t make much sense to discuss Palantir. Of course, Palantir’s results have been more than stellar over the past few quarters. It has seen several high-profile investors pile in and it has beaten Wall Street expectations markedly.
Palantir went from being solidly unprofitable with little growth in 2022 to trouncing Wall Street estimates and more than doubling its net income from 2023 to 2024. It also sees total revenue in 2025 between $3.74 billion and $3.76 billion, a year-over-year growth of 31% and well above what analysts had expected. If trends continue, Palantir will likely overshoot its guidance this year, especially if the current administration keeps giving it more contracts.
However, you’re paying 75 times forward sales and 225 times forward earnings here. You’d usually pay such a premium for a company that expects sustained triple-digit growth or a speculative startup with massive growth potential. Paying that much for PLTR stock doesn’t fly if you believe in fundamentals. Could PLTR still go up from here? Absolutely. If the AI rally continues and analysts hold up that premium, there’s still upside potential, but you’d need to be mindful of the massive downside risk if the music does stop.
The highest price target sees PLTR at $125, which offers very little upside. The lowest price target sees it plunging to $18. That said, some surprise government contracts along with a cooperative broader market, and perhaps a stock split could probably take it to over $200. Again, that’s very speculative and will take it to bubble territory, if it hasn’t already.
Super Micro Computer is a much more controversial pick, but that’s exactly why it has been changing hands at a discount. Its preliminary Q2 FY2025 report expects 54% year-over-year sales growth at the midpoint and sees FY2025 revenue in the range of $22.5 billion to $25 billion and $40 billion in FY2026 revenue.
Even if margins fall behind, you’re severely underpaying for an AI stock at 21 times forward earnings and 1.4 times forward sales. Any other cloud computing stock would trade at much higher valuations with such growth rates.
Given the recent bullishness here, I’m assuming that the company’s accounting issues won’t stick around and it’ll likely keep trading on the Nasdaq. As such, even the recent rally doesn’t fully address its undervaluation.
The highest price target here is $135, while the lowest is $28.
There’s no question that SMCI stock provides much better value than PLTR stock right now. If you were forced to pick just one of the two stocks, I’d go with Super Micro Computer over Palantir.
The bearish arguments surrounding SMCI are quickly starting to dissipate, whereas the opposite is happening for PLTR due to its valuation. Of course, no one can tell if PLTR is done gaining, but SMCI is objectively a better buy simply due to how much you’re being asked to pay for Palantir.
