As artificial intelligence reshapes industries and captivates investors, Advanced Micro Devices (AMD) and Palantir Technologies (PLTR) stand out as two prominent players. While both have seen significant surges on AI hype, a deeper look at their market positioning, recent financial triumphs—including AMD’s landmark deal with OpenAI and Palantir’s explosive commercial growth—and contrasting valuations reveals a clearer path for long-term investors.
The artificial intelligence revolution is not merely a technological trend; it’s a profound economic force. According to Goldman Sachs, AI has the potential to inject a staggering $7 trillion into the global gross domestic product (GDP) over the next decade. This immense opportunity has sent investors scrambling to identify companies poised to capitalize, and few have garnered as much attention as Advanced Micro Devices (NASDAQ: AMD) and Palantir Technologies (NYSE: PLTR).
Both tech giants have experienced impressive growth in their stock prices, riding the wave of AI enthusiasm. However, their core contributions to the AI ecosystem differ significantly: AMD is a powerhouse in AI hardware, while Palantir is a leader in AI software. This fundamental difference, coupled with their unique competitive landscapes and financial metrics, is crucial for any investor considering a long-term position.
The global AI market size, valued at $279.22 billion in 2024, is projected to surge to $3.49 trillion by 2033, demonstrating a compound annual growth rate (CAGR) of 31.5%, as reported by Grand View Research. This explosive growth underscores the importance of choosing the right entry point and the right company.
Advanced Micro Devices: Powering the AI Infrastructure
AMD sits at the heart of the AI hardware revolution, with its chips forming the backbone of data centers and next-generation personal computers. The chipmaker projects that the market for AI chips deployed in data centers will skyrocket from $45 billion last year to an astounding $400 billion by 2027. AMD’s recent performance indicates it is well-positioned to capture a substantial share of this growth.
A key driver for AMD is its newly launched Instinct MI300 series of AI processors. Management initially anticipated $2 billion in revenue from these processors for 2024, a figure that has since been revised upwards to at least $3.5 billion. This significant increase in guidance highlights the strong traction AMD’s AI chips are gaining among customers, prompting the company to boost production capacity with its supply chain partners.
The company’s second quarter results further underscore its momentum. AMD reported revenue of $7.68 billion, marking a 32% increase year over year. Gross profits rose 7% to $3.06 billion, while net income surged an impressive 229% to $872 million. Earnings per share also saw a substantial jump, climbing from $0.16 to $0.54, reflecting robust operational performance.
The OpenAI Catalyst and the Rise of AI PCs
A monumental win for AMD recently came in the form of a massive deal with OpenAI, the developer behind ChatGPT. This strategic partnership involves AMD supplying up to 6 gigawatts of GPU compute capacity to OpenAI across several generations of its GPUs. In exchange, OpenAI will receive warrants allowing it to purchase 160 million shares of AMD stock, potentially granting it a 10% stake in the company. This collaboration firmly establishes AMD as a critical infrastructure provider for leading AI innovators.
Beyond data centers, AI-powered personal computers (PCs) present another significant catalyst. AMD CEO Lisa Su stated that millions of AI PCs powered by Ryzen processors have already shipped, with Ryzen CPUs dominating over 90% of AI-enabled PCs currently in the market. The company is actively collaborating with Microsoft and other PC ecosystem partners to accelerate the next generation of AI PCs. Future PC processors are expected to deliver more than three times the AI performance compared to the Ryzen 7040 series, positioning AMD favorably as demand for AI PCs is expected to increase at an annual rate of 50% through 2030, according to Counterpoint Research.
Analysts anticipate AMD’s earnings to grow significantly, with a projected 38% increase this year from last year’s $2.65 per share, followed by a solid annual growth forecast of 25% over the next five years, as charted by YCharts. This robust outlook is largely attributed to the increasing demand for both AI chips and AI PCs.
Palantir Technologies: Dominating AI Software
While AMD excels in hardware, Palantir Technologies leads the charge in AI software. The company was reportedly ranked as the top supplier of AI software platforms in 2021. Palantir’s latest results highlight the success of its Artificial Intelligence Platform (AIP), which is rapidly driving growth across its commercial segment.
Palantir’s fourth-quarter 2023 results, released on February 5, demonstrated a significant surge in commercial customer acquisition, directly attributed to the growing demand for AIP. The company’s management emphasized that “our momentum in AIP is driving both new customer conversions and existing customer expansions.”
The impact of AIP is particularly evident in the U.S. commercial market, where Palantir saw a 55% year-over-year increase in customer count, translating into a 70% year-over-year jump in U.S. commercial customer revenue to $131 million last quarter. Globally, commercial revenue grew 32% year over year to $284 million, fueled by a 44% rise in customer count. Palantir also noted shorter sales cycles, accelerated new customer acquisition, and increased spending from existing clients, leading to 103 deals worth $1 million or more in Q4 2023—double the figure from the prior year.
AIP’s Commercial Traction
In the second quarter, Palantir surpassed the $1 billion revenue mark for the first time, with a 48% increase from the previous year. While U.S. government contracts remained the largest revenue source at $426 million (up 53%), commercial contracts experienced even faster growth, surging 93% year over year to $306 million. The company closed 157 deals in the quarter valued at a minimum of $1 million.
With AIP already adopted by over 300 customers within a year of its launch, Palantir’s commercial business is poised for continued acceleration. Analysts forecast annual earnings growth of 85% for Palantir over the next five years, suggesting AI will indeed be a powerful accelerant for its future growth.
Valuation and Investment Outlook: Which AI Stock is the Better Bet?
Both AMD and Palantir trade at premium valuations, a reflection of the high expectations surrounding AI. However, there are notable differences that discerning investors must consider. According to recent data, AMD currently trades at a price-to-earnings (P/E) ratio of 101, but its forward P/E drops to a more reasonable 28.5. Its price-to-sales (P/S) ratio stands at 9.3.
Palantir, on the other hand, presents a significantly higher valuation, with a forward P/E of 217 and a P/S ratio of 137. This stark difference highlights the market’s aggressive pricing for Palantir’s expected future growth, which analysts anticipate to be faster than AMD’s. Palantir’s leadership in the rapidly expanding AI software market is a compelling factor, but it also means the company faces immense pressure to justify its lofty valuation with consistently exceptional performance.
Competitive Landscape and Risk Appetite
The competitive landscape also plays a role. AMD, while making significant strides, operates in the AI chip market where it directly competes with established giants like Nvidia. While AMD is carving out a substantial share, this competition requires continuous innovation and strong execution.
Palantir, as a leader in AI software platforms, also faces competition, but its unique focus on integrating generative AI and large language models into its AIP has created a strong moat in its specific niche. The question for investors is whether this moat is strong enough to support such a high valuation.
For investors prioritizing a potentially “cheaper” AI stock with solid growth prospects and a clearer path to profitability supported by significant market opportunities and strategic wins like the OpenAI deal, AMD appears to be the more grounded choice. Its growth, driven by both AI chips and AI PCs, makes it an attractive long-term play in the hardware sector.
However, for those with a higher risk appetite and belief in Palantir’s ability to sustain its explosive commercial growth and expand its AI software dominance, the company could deliver stronger-than-expected returns that ultimately justify its premium valuation. The transformation driven by AIP is undeniable, but the market expects perfection at this price.
Ultimately, both companies are well-positioned within the transformative AI sector. The choice hinges on an investor’s tolerance for risk and their conviction in either the foundational hardware powering AI or the sophisticated software making AI accessible and powerful across enterprises and governments.
