Two AI Stocks Poised to Surpass Palantir by 2026

The artificial intelligence (AI) sector has been on a tear, with companies like Palantir Technologies (PLTR) leading the way. Palantir's stock has surged nearly 1,700% since the start of 2023, driven by its AI Platform (AIP) and strong commercial adoption. However, two other AI stocks, Qualcomm (QCOM) and Adobe (ADBE), are poised to surpass Palantir's market value by 2026. Let's explore the factors contributing to their growth potential and the risks they face.

Qualcomm (QCOM):

Qualcomm is a semiconductor company that designs chips for various end markets, including data centers, client (personal computers), gaming, and embedded processors. Its Snapdragon mobile system-on-chip line is used in high-end Android devices and has been adapted for PCs and automotive applications. As AI becomes more prevalent in devices, the demand for powerful AI processors will increase, driving Qualcomm's sales growth.

* Growing demand for AI on devices: As developers create new AI software designed to run on devices like smartphones, those devices will need more powerful processors. This trend is expected to increase the demand for high-powered Snapdragon processors, driving Qualcomm's sales growth.
* Strong sales growth in the QCT segment: Qualcomm's chip business (QCT) has seen strong sales growth, with revenues climbing 20% in the last fiscal quarter and earnings before taxes increasing 25%.
* Undervalued stock: Qualcomm stock trades at a P/E ratio of 14.3, making it an absolute bargain compared to its historical average P/E ratio of about 18. This implies about 25% upside from the current share price, which could push its market cap to about $230 billion, exceeding Palantir's current value.

However, Qualcomm faces several challenges:

* Apple's shift away from Qualcomm's patents: Apple is moving away from using tech built on Qualcomm's patents, which could significantly impact Qualcomm's licensing revenue.
* Tough competition in AI accelerators: While Qualcomm has made strides in AI processing power, it faces tough competition from Nvidia in the AI accelerator market. Nvidia utterly dominates this market, and Qualcomm may struggle to gain significant market share.
* Dependence on a single customer segment: Qualcomm's revenue and profits are heavily dependent on its chip business, which could be vulnerable to fluctuations in demand from its primary customer segments.

Adobe (ADBE):

Adobe is a software company that provides creative tools and services, including Photoshop, Illustrator, and Premiere Pro. It has invested heavily in AI, integrating generative AI capabilities into its software products. This has the potential to create new monetization opportunities and drive earnings growth.

* Investment in AI: Adobe has invested heavily in AI over the last few years, integrating generative AI capabilities into its software products. This has the potential to create new monetization opportunities and drive earnings growth.
* Strong competitive advantages: Adobe's tools are the industry standards, making it unlikely that professional creatives will shift away from them. Businesses expect deliverables in Adobe's file formats and expect designers and other creatives to be proficient with its software.
* Launch of new agentic AI products: Adobe plans to launch new agentic AI products in March, which could create upside to current earnings estimates.
* Undervalued stock: While Adobe's valuation of 73 times adjusted earnings may seem expensive, the median target price of $1,200 per share still implies 18% upside from the current share price of $1,020. This would push its market value to $247 billion, which could top Palantir's current valuation of $230 billion.

However, Adobe faces several challenges:

* Rich valuation: Adobe's current valuation of 73 times adjusted earnings is considered expensive by many investors. This high valuation leaves little room for error, and any missteps or slowdown in growth could lead to a significant drop in the stock price.
* Generative AI threat: While Adobe has leaned into generative AI, some investors are concerned that new AI-powered creative tools could make Adobe's Creative Cloud applications unnecessary.
* Dependence on a single product suite: Adobe's revenue and profits are heavily dependent on its Creative Cloud suite. If customers shift away from Adobe's products or if the company fails to innovate and adapt to changing market demands, its growth could be negatively impacted.

In conclusion, both Qualcomm and Adobe have the potential to surpass Palantir's market value by 2026, driven by their investments in AI and strong competitive advantages. However, they also face significant challenges that could impact their ability to achieve this goal. Investors should carefully consider these factors when evaluating these AI stocks and monitor their progress closely.