By: Sayan
Published on: Jun 02, 2025
Artificial intelligence (AI) has been the stock market’s superstar since the October 2022 lows. With breakthroughs in generative AI, investors are closely watching companies that can leverage these advancements. Two major beneficiaries are Palantir Technologies (NASDAQ: PLTR) and Alphabet (NASDAQ: GOOG, NASDAQ: GOOGL). Both stocks have more than doubled since early 2023, yet Wall Street analysts hold sharply divergent views: one is poised to continue its rally, while the other may face a significant pullback.
Palantir (PLTR) used AI to supercharge its data‐mining software. Its Artificial Intelligence Platform (AIP) has attracted new corporate clients, sending revenue—and the stock price—soaring.
Alphabet (GOOG/GOOGL) invested heavily in AI via Google Cloud and embedded generative AI tools in Search. This strategy nearly doubled its share price since the start of 2023, driven by higher engagement and advertising revenue.
AI budgets at both tech giants have expanded as enterprises roll out machine‐learning applications. Palantir’s bespoke analytics and data‐integration tools benefit from rising corporate demand. Alphabet’s cloud infrastructure caters to developers building AI models, while its Search product gains stickiness from AI‐generated features.
Palantir’s AIP democratizes advanced analytics for nontechnical users, driving a 54% increase in U.S. commercial revenue in 2024 and over 70% growth in Q1 2025.
Adjusted operating margin expanded from 24% in Q1 2023 to 44% in Q1 2025, reflecting strong operating leverage. Management now guides for 36% revenue growth in 2025 while sustaining a 44% margin.
Price/Sales Multiple: Over 75× Palantir’s projected 2025 revenue—an outlier compared to peers in enterprise software.
EV/EBITDA Multiple: Above 160× forward estimates, dwarfing competitors.
Such lofty multiples imply expectations of near‐perfect execution. Analysts expect a 20% downside over the next 12 months: the median price target is $100 (from 28 analysts), even though only six rate it as a “Buy” or “Overweight.” Wall Street appears to anticipate a valuation reset, meaning Palantir’s rich stock could correct before presenting a compelling entry point.
Despite recent regulatory scrutiny and potential antitrust mandates (e.g., forced divestiture of Chrome from Google Search), Alphabet’s Q1 2025 Search revenue rose 10% year over year.
Integration of AI Overviews—AI-generated answers alongside traditional links—boosts user engagement and monetizes at the same rate as classic search results. Other AI features like Google Lens and Circle to Search enrich product searches, driving higher ad revenue.
YouTube: Advertising revenue climbed 10% in Q1 2025, thanks to improved AI-powered content recommendations and longer watch times.
Waymo: Now completes over 250,000 autonomous ride‐hailing trips per week, accelerating toward profitability as it expands service to new cities.
Google Cloud grew revenue by 28% year over year in Q1 2025, reflecting surging demand for AI compute capacity.
Operating margin jumped 8.4 percentage points to 17.8%, highlighting strong operating leverage as data centers scale. With competitors like AWS and Azure raising prices, Google Cloud is poised for further margin expansion.
Alphabet’s median price target of $200 (based on 71 analysts) implies roughly 16% upside in the next 12 months. Sixty of those analysts rate the shares as “Overweight” or “Buy.” This consensus suggests that investors believe Alphabet’s diversification—across search, cloud, YouTube, and autonomous driving—will continue to drive revenue and profit growth despite regulatory challenges.
Factor Palantir (PLTR) Alphabet (GOOG/GOOGL)
AI Strategy Enterprise‐focused AIP → high‐margin contracts AI‐driven Search features + cloud compute offerings
Revenue Growth (Q1 2025) U.S. commercial up 70% YoY Search up 10%; Cloud up 28%; YouTube up 10%
Operating Margin (Q1 2025) 44% Overall ~30% (Cloud at 17.8%, Search higher)
Valuation (Forward P/S) >75× ~6×–7×
Analyst Rating Cautious (20% downside implied) Optimistic (16% upside implied)
Regulatory Risk Lower regulatory profile Potential antitrust actions on Search & Chrome
Palantir’s Upside/Downside
Upside: Continued U.S. commercial momentum, new verticals, sustained high margins.
Downside: Valuation reset due to extreme multiples; any revenue hiccup could trigger steep sell‐off.
Alphabet’s Long‐Term Potential
Upside: Diversified revenue streams—search, cloud, YouTube, Waymo—offer multiple growth drivers.
Downside: Antitrust rulings could force divestitures; iOS Safari’s declining searches (per Apple’s Eddy Cue) may reduce ad revenue.
AI Spending Trends
Both companies should benefit from rising AI budgets. Palantir’s analytics software is mission‐critical for enterprises, while Alphabet’s cloud infrastructure fuels large‐scale AI training and inference.
Valuation Comparison
Palantir’s forward multiples imply investors pay a premium for anticipated hypergrowth.
Alphabet’s valuation is more moderate relative to peers, offering more margin for error if growth slows.
Palantir and Alphabet share the common thread of AI‐driven growth, but Wall Street’s forecasts diverge sharply. Palantir’s exceptional execution in 2024–2025 has yet to be matched by a valuation that most analysts consider sustainable. With a 20% downside consensus, some investors may choose to wait for a pullback before buying. In contrast, Alphabet’s diversified businesses and more reasonable multiples have earned a 16% upside projection. For investors seeking a less risky path to AI exposure, Alphabet may be the better choice—at least over the next 12 months.
Comments
No comments yet. Be the first to comment!
Leave a Comment