Investors Are Rotating Out of Palantir. Here’s the Growth Stock I’m Buying Instead.
Over the past few years, few stocks have blown up and epitomized the artificial intelligence (AI) bull market like Palantir Technologies(NASDAQ: PLTR).
The returns over the past few years have been staggering. In 2023, Palantir stock rose 167%, followed by a 340% increase in 2024. Last year was another banner year for Palantir, as the stock rose 135%.
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The company, which provides software that allows government agencies, companies, and enterprises to manage and analyze large amounts of AI data, has seen massive growth during this AI explosion due to the increasing reliance on AI for decision-making.
Image source: Getty Images.
But the stock peaked last year at just over $200 per share in late October. Since then it is down about 30%, including a 20% drop year to date (YTD).
The decline is not because demand has dried up. Palantir accelerated its revenue growth in the fourth quarter, as it rose 70% year over year. For the full year, revenue rose 56%, which was faster than 2024’s 29% growth rate.
And it’s guided for even faster growth in 2026, calling for more than 60% revenue growth to a range of $7.18 billion to $7.19 billion. And adjusted income from operations is targeted to rise about 83% to $4.126 billion this fiscal year.
The reason that Palantir stock is down stems mostly from its high valuation. When a stock has grown from about $8 per share at this time three years ago to more than $142 per share now, the valuation is going to soar.
That’s exactly what happened, as even with accelerating revenue growth, the stock is overvalued. In September of last year, when Palantir stock was near its peak, the P/E ratio was an astronomical 607. Even now, with the stock down some 30% from then, the P/E ratio is still ridiculously high at 289, with a forward P/E ratio of 116.
The sell-off was likely in part due to investors rotating out of overvalued tech stocks with an uncertain economic and regulatory environment expected in 2026. But also, many investors decided to take profits after such a meteoric rise. In addition, SEC filings showed that a number of insiders and executives were selling off Palantir stock, which may have also spurred the sell-off.
Palantir is still overvalued, even after this decline. So investors may want to consider rotating into another AI highflier, Sandisk(NASDAQ: SNDK).
No stock has had a better run over the past year or so than Sandisk, the company that makes flash drives and solid-state drives for data centers, mobile phones, and other electronics.
Sandisk went public in February 2025 after spinning off from Western Digital, and since then the stock has gone through the roof. It is up a whopping 1,067% over the past 12 months and 141% year to date to $575 per share, and it still has room to run.
It has been a leading beneficiary of the storage stock supercycle, as demand for AI data storage has outpaced supply, which has led to surging demand and higher prices for Sandiskʻs NAND flash drives and solid-state drives. This supercycle has created a perfect storm for Sandisk, and it is not likely to subside anytime soon.
This may be a particularly good time to buy Sandisk stock because it has plummeted about 25% in just the past two weeks from a high of $776 per share on March 19. Part of it is the general tech stock sell-off, exacerbated by the uncertain economic and geopolitical conditions, along with high valuations.
But the primary catalyst for the sell-off is a new TurboQuant algorithm introduced by Alphabet‘s Google, which is designed to compress AI memory storage needs by 6X.
Some investors saw this revolutionary TurboQuant software as reducing the needs for the storage chips that Sandisk offers. But some analysts, notably Morgan Stanley, called the impact on Sandisk and memory chips in general overblown. In fact, Morgan Stanley analysts said storage needs are only going to increase, and this new algorithm could alleviate the supply constraint for AI chips, creating more capacity.
Similar to Palantir, Sandisk has enjoyed explosive revenue growth, and its outlook calls for the boom to continue. In its guidance for the current quarter, Sandisk expects revenue to increase 53% over last quarter.
The big difference is Sandisk is still a good value. Its net income surged 617% last quarter year over year to $803 million, and it has a forward P/E ratio of just 18. This recent pullback makes it even more attractive. That’s why Sandisk stock is on my radar right now.
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Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Palantir Technologies, and Western Digital. The Motley Fool has a disclosure policy.
