Better artificial intelligence stock: Palantir (PLTR) vs. Alibaba (BABA)

Palantir vs. Alibaba: Unpacking the AI Investment Debate

The artificial intelligence revolution is reshaping investment landscapes, presenting investors with compelling, yet often complex, choices. Among the most debated AI stocks are Palantir Technologies and Alibaba Group. While Palantir has garnered significant attention for its explosive past performance, Alibaba, a global tech behemoth, offers a different proposition. The critical question for investors isn't just about historical returns, but about future potential. Let's dive deep into their financials, growth trajectories, and valuations to determine which might be the smarter bet for your AI-focused portfolio.

Financial Strength: A Tale of Two Titans

When it comes to raw financial muscle, Alibaba Group undeniably stands as the Goliath. Over the last year, Alibaba generated nearly $1 trillion in revenue and approximately $129.5 billion in earnings, dwarfing Palantir's $3.12 billion in revenue and $571 million in earnings. This sheer scale highlights Alibaba's established market presence and diverse operations. However, Palantir counters with a superior profit margin of 18.3% compared to Alibaba's 13.1%, indicating more efficient operations on a smaller scale.

Looking at the balance sheet, Alibaba boasts a colossal $428 billion in cash reserves, far outstripping Palantir's $5.4 billion. Yet, Alibaba also carries significantly more debt at $248 billion, contrasting sharply with Palantir's modest $244.6 million. This gives Palantir a more attractive debt-to-equity ratio of 4.4% versus Alibaba's 22.8%, suggesting a healthier financial structure from a leverage perspective.

Growth Trajectories: Speed vs. Scale

Palantir currently exhibits a much more aggressive growth profile. In the first quarter of 2025, Palantir's revenue surged by 39% year-over-year, reaching $883.9 million, with GAAP earnings more than doubling. Its non-GAAP earnings leaped by almost 70%. In comparison, Alibaba's growth, while solid, is more modest, with a 7% increase in revenue and a 22% jump in adjusted earnings in its latest reported quarter.

This disparity is expected to persist, though perhaps narrow. Alibaba's AI-related product revenue has consistently delivered triple-digit growth for seven consecutive quarters, underscoring its significant long-term potential in AI and cloud computing within the vast Chinese market. Meanwhile, Palantir continues to secure substantial contracts in both government and private sectors, fueled by the accelerating adoption of large language models and foundational AI software. The market's "stampede" towards these technologies positions Palantir for sustained momentum.

Valuation Insights: Premium vs. Bargain

The most striking difference between these two companies lies in their valuations. Palantir trades at a staggering forward price-to-earnings (P/E) ratio of nearly 278, reflecting immense investor optimism and expectations for explosive future growth. Alibaba, on the other hand, appears to be a bargain with a forward P/E multiple of just 14.

To account for growth, the price-to-earnings-to-growth (PEG) ratio offers a clearer picture. Analysts project Palantir's five-year earnings growth, resulting in a PEG ratio of 4.9. Alibaba’s PEG ratio is a mere 1.09, making it significantly more attractive when factoring in growth prospects. Other metrics reinforce this view: Alibaba's price-to-sales (P/S) ratio is 2.08 compared to Palantir's 126.9, and its enterprise-value-to-EBITDA is 9.02 versus Palantir's 848.9. By virtually every valuation metric, Alibaba appears to offer a far more compelling value proposition.

The Better AI Stock for Your Portfolio

While some analysts predict Palantir's market capitalization could reach $1 trillion within the next few years, an astounding leap from its current $370 billion, this bullish outlook heavily relies on an acceleration of growth that has yet to materialize sufficiently to justify its extreme premium. The company's current growth, though impressive, struggles to support such a high valuation.

Conversely, Alibaba’s fundamental strengths are compelling. It dominates China's immense cloud services market and remains a pivotal player in its e-commerce sector. Furthermore, its strategic moves, such as plans to launch AI glasses, demonstrate its commitment to innovation and market expansion. Coupled with its significantly undervalued stock, Alibaba presents a strong case. Based on current facts and a balanced assessment of financials, growth, and valuation, Alibaba appears to be the more prudent and potentially rewarding AI stock investment right now. For investors seeking immediate value and robust long-term potential without the speculative premium, Alibaba offers a compelling opportunity.