Palantir Technologies PLTR has emerged as a defining force in the artificial intelligence (AI) revolution, building powerful data integration platforms like Foundry and Gotham that make AI actionable for governments and large corporations. Its flagship Artificial Intelligence Platform (AIP), which infuses generative AI into private enterprise data, has been primarily driving its explosive growth lately.
However, after a year of spectacular growth of more than 150%, PLTR stock has witnessed a sharp plunge of approximately 19% over the past month.
This pullback might encourage investors interested in AI stocks to invest in PLTR right away. However, considering the stock’s premium valuation, a strategic entry point for a prudent investor should be through exchange-traded funds (ETFs), particularly those offering heavy exposure to AI-centric tech stocks, including PLTR, rather than direct single-stock investment.
Now, one might ask: Why should we invest in ETFs instead of tech stocks, many of which have been rallying significantly in recent times? To answer that, let us first dig a little deeper into why PLTR stock plunged, whether it is wise to invest in the AI industry now, and finally, which ETFs you might consider to capture potentially high returns.
The correction in PLTR’s share price over the past month was not unique to Palantir but part of a broader AI-related sell-off, despite the company posting strong quarterly results, including a record $1.2 billion in sales — up 63% year over year — and exceptional profitability.
The industry-wide AI euphoria was driven primarily by intense investor anxiety over sky-high valuations.
In line with this trend, Palantir also remains overvalued at the moment, with its trailing 12-month Price/Earnings (P/E) ratio being 495.4, 18x higher than the S&P 500’s P/E ratio of 27. This naturally prompted prominent investors to question whether its current valuation justifies its prospects, especially after such a rapid ascent. Short interest and broader market skepticism about AI stock premiums also contributed to the stock’s recent volatility.
The current valuation of PLTR is indeed a point of contention, with its high multiples suggesting it is overvalued relative to current fundamentals. For example, some analysts have noted that even with strong future growth, the stock’s current market cap already prices in much of that success.
Nevertheless, the long-term fundamentals of Palantir remain strong. The company has demonstrated robust growth, particularly in its lucrative U.S. commercial revenues, which registered a solid 121% year-over-year improvement in third-quarter 2025, with AIP being its commercial growth engine. The company also boasts strong liquidity worth $6.4 billion, with no current and long-term debt.
This financial strength, coupled with its unique, mission-critical position in government and commercial AI, should help keep it relevant and a major player in the AI industry over the next decade.
As for the AI industry, the current overvaluation concerns, while worrisome, may not persist over the long term, given the sector’s enormous growth potential and the deepening integration of AI into the global economy. Multi-billion-dollar collaborations, such as Google Cloud’s AI-powered partnerships with General Motors and BMW, along with massive AI infrastructure investments by giants like Microsoft and Amazon, underscore the industry’s transformative, long-term potential.
To this end, a new UN Trade and Development (UNCTAD) report projected in April 2025 that the global AI market will soar from $189 billion in 2023 to $4.8 trillion by 2033. This implies a 25-fold increase in just a decade, highlighting the enormous growth opportunity that industry players like Palantir stand to benefit from.
Against this backdrop, investors looking to benefit from the AI industry’s expansion may be better served by investing in ETFs with significant exposure to AI-centric tech stocks, rather than buying individual stocks at premium valuations, which can expose them to outsized risk, especially when sentiment shifts. As shown below, these ETFs have experienced declines over the past month, presenting an opportunity for investors to purchase additional units at lower NAVs and benefit from potential upside in bullish market conditions.
The fact that these ETFs include tech stalwarts like Alphabet GOOGL and Microsoft MSFT makes them more attractive. Alphabet is already well-established in the search engine industry, while MSFT is a leading provider of cloud computing software. Others, like iPhone-maker Apple AAPL, generate revenue from their popular, high-quality hardware products. These tech stocks do not rely entirely on AI for their baseline growth, thereby balancing the risk of sector hype with proven, resilient business models in adjacent technology fields.
This diversification provides investors with exposure to high-growth AI trends while offering a buffer of stable growth from established, non-AI-centric businesses.
These funds are:
iShares Expanded Tech-Software Sector ETF IGV
This fund, with net assets worth $8.19 billion, offers exposure to 111 software companies in the technology and communication services sectors. Its top three holdings include PLTR (9.22%), MSFT (8.98%) and Salesforce Inc. (7.47%), a global leader in CRM software.
IGV has lost 10.1% over the past month but gained 4% year to date. The fund charges 39 basis points (bps) as fees and holds a Zacks ETF Rank #2 (Buy). It trades at an average volume of 5.72 million.
Technology Select Sector SPDR ETF XLK
This fund, with assets under management (AUM) worth $96.46 billion, provides exposure to 70 companies from technology hardware, storage and peripherals; software; communications equipment; semiconductors and semiconductor equipment; IT services; and electronic equipment, instruments and components industries. Its top 10 holdings include APPL (13.34%), MSFT (11.69%) and PLTR (3.41%).
XLK has lost 5.2% over the past month but surged 23.6% year to date. The fund charges 8 bps as fees and sports a Zacks ETF Rank #1 (Strong Buy). It traded at a volume of 3.4 million in the last trading session.
iShares U.S. Technology ETF IYW
This fund, with net assets worth $20.9 billion, offers exposure to 140 U.S. electronics, computer software and hardware, and informational technology companies. Its top 10 holdings include APPL (15.43%), MSFT (13.80%), GOOGL (3.11%) and PLTR (2.51%).
IYW has lost 4.8% over the past month but surged 24.7% year to date. The fund charges 38 bps as fees and sports a Zacks ETF Rank #1. It trades at an average volume of 0.91 million.
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Apple Inc. (AAPL) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
Technology Select Sector SPDR ETF (XLK): ETF Research Reports
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
iShares U.S. Technology ETF (IYW): ETF Research Reports
iShares Expanded Tech-Software Sector ETF (IGV): ETF Research Reports
Palantir Technologies Inc. (PLTR) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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