The buzz around artificial intelligence has sent several tech stocks soaring, making it harder for investors to separate real value from inflated hype. While the potential for AI to reshape industries is massive, not every AI-focused company is a smart investment right now. Some stocks are priced far beyond what their performance can justify, while others with solid fundamentals are surprisingly affordable.
Let’s break down one AI stock that’s drawing concern due to sky-high valuation—and highlight another with strong long-term promise and an attractive price tag.
Why Palantir Stock Looks Overheated in June
Palantir Technologies (NASDAQ: PLTR) has had a jaw-dropping run since late 2022. Its stock has surged nearly 2,000%, driven by demand for its AI-powered data platforms—Gotham and Foundry. Gotham supports government clients with intelligence and defense planning, while Foundry helps businesses optimize operations through machine learning insights. These platforms are unique and sticky, giving Palantir a solid competitive edge.
The company has also impressed with early, consistent profitability, proving the strength of its dual-platform business model. But despite these positives, Palantir’s stock is simply too expensive to ignore the risks.
Red Flags for Palantir Investors
1. Limited Growth for Gotham
Palantir’s government-facing platform has a narrow market. It primarily serves the U.S. and allied nations, which limits its expansion potential. Additionally, with discussions around defense budget trimming in the U.S., Gotham’s revenue prospects may face headwinds.
2. Valuation Bubble
Palantir’s price-to-sales (P/S) ratio at the end of May stood at an eye-popping 105. Historically, even dominant players in previous tech trends haven’t maintained P/S ratios over 40 without experiencing sharp corrections. This figure makes Palantir vulnerable if market sentiment shifts.
3. The “Next-Big-Thing” Pattern
Most breakthrough tech trends—from the dot-com boom to social media—have experienced early-stage bubbles. AI is likely following the same path, where expectations outpace realistic adoption. That could leave high-flying stocks like Palantir exposed to sudden declines.
Despite its contracts being long-term and Foundry being subscription-based, a drop in investor confidence could still hit the stock hard, especially when expectations are sky-high.
Alphabet Stock a Long-Term Bargain
Alphabet (NASDAQ: GOOG) is a leader in digital advertising and internet services, but it’s also becoming a major force in AI. Unlike Palantir, Alphabet’s core business is already highly profitable, and its AI investments—especially through Google Cloud—are driving future growth.
Challenges in 2025
Alphabet has faced legal scrutiny this year. The U.S. Justice Department is pushing for potential divestitures, arguing the company’s dominance stifles competition. There’s also growing concern that large language models (LLMs) might reduce Google Search’s market share.
Still, neither issue appears likely to undermine Alphabet’s long-term strength.
– Google Search has maintained a market share of 89% to 93% globally for over a decade.
– Advertisers continue to pay a premium to appear on Google platforms, supporting Alphabet’s pricing power.
– Historically, ad-driven businesses perform well during long economic expansions, and recessions tend to be short-lived.
Google Cloud: The Growth Engine
Google Cloud is now the third-largest global cloud infrastructure provider, generating nearly $49 billion annually. This segment delivers higher margins than advertising and will likely play a larger role in Alphabet’s revenue mix over time.
The integration of generative AI tools into Google Cloud makes it even more compelling for enterprise customers. As demand for smarter, AI-powered cloud solutions grows, Alphabet stands to benefit significantly.
In addition, Alphabet holds over $95 billion in liquid assets. This war chest allows it to continue investing in AI innovation, fund acquisitions, and repurchase shares, enhancing shareholder value.
Why Alphabet Stock Deserves Attention
Alphabet’s stock currently trades at a forward price-to-earnings (P/E) ratio of 16.9—about 24% lower than its five-year average. That’s a solid value for a company with consistent profitability, a dominant hold on digital advertising, and expanding strength in AI through Google Cloud.
Unlike Palantir, which faces steep valuation risks and limited market expansion, Alphabet presents a more balanced opportunity with steady growth, innovation, and financial resilience.
For investors eyeing long-term potential in the AI space, Alphabet stands out as a smart, well-priced pick worth considering this June.