Palantir (NASDAQ: PLTR) and Tesla (NASDAQ: TSLA) are two of the hottest tech stocks in the market right now. Over the last six months, they’re up 105% and 77% respectively.
Looking ahead, both of these companies appear to have tremendous growth potential given their innovative AI-related products and services. However, here’s why I’m not buying stock, or at least not yet.
Palantir’s generating unprecedented growth
Palantir’s no longer a company that can be ignored. On the back of the success of its Artificial Intelligence Platform (AIP) – which allows private and public organisations to build, deploy, and operationalise AI on their own private data and systems – its recent growth has been unbelievable.
Last quarter, it reported revenue of $1bn, up 45% year on year. In the two quarters prior to this, top-line growth was 39% and 36%, a noteworthy acceleration.
These kinds of numbers suggest the company has a really good product. And it makes me think that I should have some exposure to the business in my portfolio.
The thing is, at present, the company has a market-cap of $420bn. That’s pretty high given that 2025 sales are only forecast to be $4.2bn.
That market-cap puts the forward-looking price-to-sales ratio at 100. For reference, AI chip powerhouse Nvidia‘s currently trading at about 21.
The problem with that kind of triple-digit valuation is that it implies top-line growth’s going to stay very high for a while. And things may not play out this way.
What if corporate AI spending slows a little and Palantir’s top-line growth is only 25%? In this scenario, I’d expect the stock to fall sharply as investors reset their expectations.
Given the high price-to-sales multiple, this stock’s staying on my watchlist for now. I can see myself owning it at some stage, but I’m not ready to pull the trigger yet.
Tesla has huge potential
Turning to Tesla, it’s not experiencing the same kind of growth as Palantir. This year, revenues are actually projected to fall year on year.
Taking a long-term view however, the future looks exciting. Not only is the company likely to be a major player in autonomous vehicles (it already has robotaxis on the road in the US), but it also looks set to be a big player in humanoid robotics (thanks to its ‘Optimus’ robots).
Zooming in on the humanoid robotics side of the business, this appears to have considerable potential. According to analysts at Citi Global Insights, the market for humanoids could be worth $7trn by 2050.
Now, the price-to-sales ratio here doesn’t look crazy. Currently, it’s about 15.
The metric that’s problematic for me however, is the price-to-earnings (P/E) ratio. Currently, this stands at about 250 (versus 39 for Nvidia).
For a well-established company with many years of profitability, that’s a really high multiple. To my mind, it just doesn’t match the fundamentals, despite the growth potential here.
Right now, Tesla’s trading like it’s going to own both the autonomous driving and humanoid robotics markets. This is unlikely to be the case though as it looks set to face intense competition in both.
So like Palantir, this stock’s staying on my watchlist for now. If the valuation comes down to a more reasonable level, I will consider it for my portfolio.
