On this piece, I evaluated two technology stocks: Palantir Technologies (PLTR) and Alphabet (GOOGL). A more in-depth look suggests a neutral view of Palantir and a bullish view of Alphabet.
Palantir Technologies makes a speciality of big data analytics, while Alphabet is a holding company that owns the Google search engine and sells apps and content on Google Play and YouTube. Alphabet also generates revenue from cloud services fees, licensing revenue, and hardware products like Chromebooks and other devices.
Shares of Palantir have skyrocketed 80% year-to-date and greater than doubled over the past yr, rising 111%. Meanwhile, Google stock has jumped 19% year-to-date and 27% over the past 12 months.
With such a dramatic difference of their year-to-date returns, the sizable gap between their valuations is not any surprise. We compare their price-to-earnings (P/E) ratios to gauge their valuations against one another and the software industry.
For comparison, the technology industry is trading at a P/E of 46.3x versus its three-year average of 39.3x.
Palantir Technologies
At a P/E of 182.3x, Palantir Technologies looks significantly overvalued relative to its industry. While its forward P/E of 80.3x looks much more attractive, this stock is just somewhat too hot to handle without delay, suggesting a neutral view could be appropriate — pending a more attractive valuation.
Though Palantir Technologies is primarily a cloud or software-as-a-service stock, its valuation has soared this yr, driven by the potential of artificial intelligence. In early August, the corporate boosted its full-year revenue outlook because of the strength of its AI platform, marking the second time it has done so this yr.
Palantir is basically where Alphabet or Google was a couple of years ago. It may do no incorrect, and investors are happily pushing its valuation endlessly through the roof. Nevertheless, Palantir just isn’t Alphabet yet, so things may have to decelerate sooner or later, which is why I feel a wait-and-see approach is best without delay.
In truth, investors with a position in Palantir might want to think about taking some profits now, anticipating an inevitable dip. Patience is the secret with Palantir stock without delay.
What Is the Price Goal for PLTR Stock?
Palantir Technologies has a Hold consensus rating based on three Buys, five Holds, and 6 Sell rankings assigned over the past three months. At $25.42, the average Palantir stock price goal implies downside potential of 17.97%.
See more PLTR analyst rankings
Alphabet
At a P/E of 24.2x, Alphabet hasn’t been this low-cost since about March, suggesting this will be a singular buy-the-dip opportunity on this stellar stock. Thus, a bullish view seems appropriate, especially since that is one stock investors should want to consider buying and holding for the very long run.
In the most recent quarter, Alphabet’s quarterly cloud revenues surpassed $10 billion for the primary time, making up over one-third of its total revenue of $84.7 billion. Thus, Alphabet may be very much a cloud play, though it offers diversified exposure to a big selection of technology sectors.
While Alphabet hasn’t been this low-cost since March, a review of its valuation since October 2019 shows that it’s trading at the underside of its recent peak in July, when it topped out at around 29x. The stock has also been trading towards the underside to middle of its P/E range since October 2019. Alphabet’s P/E has varied from about 17x in November 2022 to 39x in April 2021.
Thus, this is a superb time to be picking up some Alphabet shares — or at the very least to be adding to an already-established position.
A review of Alphabet’s long-term share-price gains demonstrates why that is one stock to purchase and hold for the long run. One could argue that the corporate has earned blue-chip status, which is why it’s a buy-and-hold position.
Moreover, Alphabet stock is up 15% over the past three years, which has been difficult for technology stocks basically. The stock is up 183% over the past five years and 463% over the past decade, again indicating that the overall trend for Alphabet is up and to the suitable, even in periods which are difficult for the tech sector as a complete.
What Is the Price Goal for GOOGL Stock?
Alphabet has a Strong Buy consensus rating based on 28 Buys, seven Holds, and nil Sell rankings assigned over the past three months. At $205.03, the average Alphabet stock price goal implies upside potential of 24.50%.
See more GOOGL analyst rankings
Conclusion: Neutral on PLTR, Bullish on GOOGL
While Palantir could turn into a stock price buying and holding over the long run, its current valuation has simply gotten ahead of itself. Like Alphabet, Palantir has put up impressive three- and five-year gains, but when the stock last surpassed $30 per share in February 2021, a correction soon followed. Thus, investors should pay attention to volatility across the corner.
Importantly, Palantir Technologies is being valued like a growth stock, while Alphabet stock has transitioned into value stock or blue-chip territory. Nevertheless, Alphabet is just too low-cost to disregard without delay, especially because of its blue-chip status. Thus, a review of their valuations reveals that Alphabet is the clear winner of this pairing.