Doug Clinton, the CEO of investment advisory firm Intelligent Alpha, and Tom Essaye, a veteran professional trader, agreed that Palantir (PLTR) is too expensive to buy at this point. Clinton and Essaye were both guests on Schwab Network recently.

 Palantir's Valuation Is Problematic, Clinton and Essaye Said

"Our AI models don't like Palantir enough for us to own it," Clinton said. Although PLTR is "an incredible company" with "tremendous business momentum," the fact that it trades at 50 times its revenue creates an "issue," he explained.

A software engineer intently typing code into a laptop with multiple screens in an office.

Similarly, Essaye said that PLTR should be examined "in a context of reasonable valuation." Although the shares are down a great deal from their highs, the name is still too expensive to buy, Essaye said. He added that the stock is being pressured by worries over the AI sector and fears about lower spending on contracts by Washington.

"Federal contracts are a large part of the company's business," Essaye noted.

PLTR Will Have to Drop a Great Deal to Become Attractive, Clinton and Essaye Believe

PLTR stock will have to decline much further to trade at similar valuations to other successful, AI-oriented software names, Clinton said.

Expressing his view of PLTR more bluntly, Essaye said that it "can continue to decline," adding that it would have to drop a great deal more before he would "become interested" in it.

"It's a good company, but it's so richly valued that it can fall quite a bit more before value buyers step in," he warned.

While we acknowledge the potential of PLTR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is as promising as PLTR but trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.