Shares of Palantir Technologies (PLTR -10.73%) have had an incredible run the past few years. The stock has rocketed more than 1,000% since 2022, bringing its market cap (share price times total shares outstanding) to $195 billion at the time of writing.

That market cap is high for a company with just $2.8 billion in trailing revenue and $462 million of net income. Artificial intelligence (AI) stocks have been all the rage on Wall Street, but even analysts can't overlook Palantir stock's expensive valuation. The consensus rating on the shares is currently neutral (hold).

There is significant downside risk in Palantir shares. Investors are paying an astronomical multiple of the company's sales and earnings that it may not be able to justify.

Meanwhile, other AI stocks trade at more reasonable valuations and may outperform Palantir over the next year. Here are two promising stocks in the chip and software markets that could be worth more than Palantir by next year.

1. Advanced Micro Devices

Advanced Micro Devices (AMD -2.77%) is a leading supplier of chips for consumer PCs, video game consoles, data centers, and other markets. It has a market cap of $158 billion and trades at a forward price-to-earnings (P/E) multiple of about 21. Wall Street analysts expect AMD's earnings to grow 42% annually over the next several years.

The stock has fallen 56% from previous highs over mixed financial results across its business segments over the past year. Strong revenue increases in the data center and client segments (PC chip sales) more than offset declines in AMD's gaming and embedded chip businesses, which is causing some uncertainty around AMD's near-term momentum.

However, AMD is well positioned to continue growing its data center business. Data center revenue grew 69% year over year in the fourth quarter to reach $3.9 billion, or 51% of the business. In addition to growing demand for its graphics processing units (GPUs) used for AI workloads, AMD's EPYC central processing units (CPUs) gained share in the server market.

AMD's GPUs are being used by several leading tech companies, including Meta Platforms, Microsoft, DigitalOcean, and IBM. Management noted more AI design wins that will be deployed for its MI300 chip in the first half of 2025, while the new MI350 series should benefit from chip deployments to handle AI inferencing, where a trained model learns to make predictions on its own from new data. Inferencing will drive a lot of demand for AI chips going forward, and AMD could benefit tremendously.

Moreover, investors shouldn't overlook the gains AMD is making on Intel in the PC chip market, with client segment revenue up 58% year over year, reaching a record $2.3 billion in the fourth quarter. It was the fourth straight quarter of market share gains for AMD's Ryzen processors.

The company's smaller businesses in gaming and embedded chips will eventually rebound, but there's enough momentum in data centers and the client segment to fuel solid returns for investors. AMD stock trades at a low forward P/E for a growth stock that may undervalue its potential in a growing semiconductor industry.

2. ServiceNow

ServiceNow (NOW -5.32%) is a leading enterprise software company that has delivered consistent double-digit growth for several years. Corporations use ServiceNow to automate and streamline business processes. The stock has a market cap of $185 billion and a forward P/E of 56.

Revenue grew at a compound annual rate of 32% over the last 10 years. It is gradually slowing as the business grows in size, but fourth-quarter subscription revenue growth was solid at 21% year over year. Management forecasts subscription revenue to increase between 18.5% to 19% year over year in Q1 2025.

The company experienced expanding margins that are driving strong growth in adjusted earnings and free cash flow. On a non-GAAP (generally accepted accounting principles) basis, operating margin improved to 29.5% in 2024, and management is guiding for operating margin to reach 30.5% in 2025. The company should see margins continue to stretch higher as it achieves greater scale.

A major catalyst that will fuel more revenue growth is adoption of AI agents, where software becomes smart enough to learn and complete tasks without human intervention. On that front, management noted a sharp increase of 150% year over year in the number of deals for its Pro Plus AI offerings recently.

ServiceNow sees its addressable market growing from $200 billion in 2024 to $275 billion by 2026. More business leaders are looking to simplify business processes and save money with AI. This is fueling more momentum in large deals, where the company signed 19 deals worth more than $5 million in net new annual contract value in Q4.

Analysts expect ServiceNow to grow earnings at an annualized rate of 32% over the next several years, which should support its current valuation. The stock should hold up better than Palantir shares in the near term, with the potential to deliver market-beating gains over the long term.