In this article, I evaluated two technology stocks: Palantir Technologies (PLTR) and Alphabet (GOOGL). Upon closer inspection, Palantir is neutral, while Alphabet is bullish.

Palantir Technologies specializes in big data analytics, while Alphabet is a holding company that owns the Google search engine and sells apps and content on Google Play and YouTube. Alphabet also generates revenue from cloud service fees, licensing revenue, and hardware products such as Chromebooks and other devices.

Palantir shares have skyrocketed 80% year-to-date and have more than doubled in the past year, with a 111% increase. At the same time, Google shares are up 19% year-to-date and 27% over the past 12 months.

Given such a dramatic difference in their year-to-date returns, the significant gap between their valuations is no surprise. We compare their price-to-earnings (P/E) ratios to compare their valuations to each other and to the software industry.

For comparison, the technology sector trades at a P/E ratio of 46.3, compared to a three-year average of 39.3.

Palantir Technologies

With a P/E ratio of 182.3, Palantir Technologies appears significantly overvalued relative to its industry. While its forward P/E ratio of 80.3 appears significantly more attractive, this stock is simply too hot to hold at the moment, suggesting a neutral view may be in order – pending a more attractive valuation.

Although Palantir Technologies is primarily a cloud or software-as-a-service company, its valuation has risen sharply this year, driven by the potential of artificial intelligence. In early August, the company raised its full-year revenue forecast—for the second time this year—due to the strength of its AI platform.

Palantir is essentially where Alphabet or Google were a few years ago. The company can do no wrong and investors are happily driving up its valuation. However, Palantir is not Alphabet yet, so things will have to slow down at some point, which is why I think a wait-and-see approach is best for now.

In fact, investors holding a position in Palantir should consider taking some profits now, as they face an inevitable pullback. Patience is key with Palantir stock right now.

What is the price target for PLTR stock?

Palantir Technologies has a consensus rating of “Hold” based on three buy, five hold, and six sell ratings over the past three months. The average price target for Palantir stock is $25.42, implying a downside potential of 17.97%.

View more PLTR analyst ratings

alphabet

With a P/E ratio of 24.2, Alphabet hasn’t been this cheap since March, suggesting that this could be a golden opportunity to buy this excellent stock on a dip. Therefore, a bullish view seems appropriate, especially since this is a stock that investors may want to buy and hold for the long term.

Last quarter, Alphabet’s quarterly cloud revenue exceeded $10 billion for the first time, accounting for over a third of its total revenue of $84.7 billion. So Alphabet is very much a cloud player, even as it offers diversified exposure to a wide range of technology sectors.

Although Alphabet hasn’t been this cheap since March, a look at its valuation since October 2019 shows that it is trading at the low point of its recent peak in July, when it peaked at about 29x. The stock has also traded in the low to mid-range of its P/E range since October 2019. Alphabet’s P/E has fluctuated between about 17x in November 2022 and 39x in April 2021.

Therefore, this is an excellent time to buy some Alphabet shares – or at least add to an existing position.

A look at Alphabet’s long-term share price gains shows why this stock is worth buying and holding for the long term. One could argue that the company has earned blue-chip status, which is why it’s a buy-and-hold position.

Additionally, Alphabet stock is up 15% over the past three years, which is challenging for tech stocks in general. The stock is up 183% over the past five years and 463% over the past decade, again indicating that the overall trend for Alphabet is up and to the right, even during tough times for the entire tech sector.

What is the price target for GOOGL stock?

Alphabet has a strong buy rating based on 28 buy ratings, seven hold ratings, and zero sell ratings over the past three months. The average price target for Alphabet stock is $205.03, implying an upside potential of 24.50%.

View more GOOGL analyst ratings

Conclusion: Neutral for PLTR, bullish for GOOGL

While Palantir could become a worthwhile stock to buy and hold over the long term, the current valuation is simply too high. Like Alphabet, Palantir has posted impressive three- and five-year gains, but when the stock last crossed the $30 per share mark in February 2021, a correction soon followed, so investors should be aware of the volatility ahead.

Importantly, Palantir Technologies is valued like a growth stock, while Alphabet stock has moved up into value stock or blue-chip territory. However, Alphabet is simply too cheap to ignore right now, especially given its blue-chip status. So, a look at the valuations shows that Alphabet is the clear winner in this pairing.

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