Forget Palantir: These 3 Undervalued AI Stocks Are Set to Surge

Palantir (NASDAQ:PLTR) is Wall Street’s latest and greatest darling, and it has shown no sign of slowing down as it continues to procure government contracts and propel the market’s ongoing AI rally. The company has been beating and raising with stellar figures every quarter, and the growth outlook is only getting better, with former bears turning into bulls.

Investors on Wall Street are increasingly valuing it on free cash flow (FCF), because this is where Palantir’s actual value lies. Valuing it on future earnings gets you an absurd forward price-to-earnings ratio of 288 times. If you value it on cash flow, things look much better.

FCF came in at $569 million with a margin of 57%. At this pace, we could be looking at $2.5 billion for all of 2025. That means you pay a 175 times forward FCF premium. This is slightly less absurd, but still something the market is willing to pay for a company that keeps landing contract after contract.

So, should you go ahead and buy PLTR stock? I’d say it’s not a bad idea at all to have exposure to the hottest stock on the market. But should you put all your eggs into one basket? I don’t think so. This PLTR rally has not yet been tested by a bona fide bear market. If a 2022-esque downturn hits, no one knows how painful the downside may be.

Thus, I’d hold other similar AI stocks alongside Palantir. Here are three that may surge soon.

CACI International (CACI)

CACI International (NYSE:CACI) is a professional services and IT company that mainly serves the U.S. government. It has seen solid growth recently, and that growth has only accelerated after DOGE-related fears cooled off. These fears were replaced with optimism, as the Trump administration made a U-turn on defense spending. The 2026 proposed defense budget includes an increase of $156.2 billion.

CACI competes directly with Palantir for many contracts, and both firms support U.S. military and government operations. The scope here is broader, and CACI goes beyond software.

It posted solid Q2 earnings that beat analyst estimates. Revenue grew 13% year-over-year to $2.3 billion and beat analyst estimates of $2.29 billion. Adjusted EPS of $8.4 trounced analyst expectations of $6.58. The backlog also grew to $31 billion.

I see the stock returning to its trajectory of consistency. It trades at just 18 times forward earnings and can pull off double-digit growth due to the increase in defense-related budgets.

Booz Allen Hamilton (BAH)

Booz Allen Hamilton (NYSE:BAH) is an IT consulting firm that sells its services to U.S. government agencies. It specializes in AI, cybersecurity, and tech-related fields and is a partner of Palantir. This company has a long history and has been active in the space sector, too. Booz Allen helped with the Hubble Space Telescope’s design and the Apollo 11 mission.

Much like CACI, BAH stock declined significantly starting in November due to fears of the government cutting back on spending. BAH stock started stabilizing in June, and I see major upside potential ahead.

You get a 1.97% dividend yield on top of the upside. Booz Allen is well-positioned to capture tailwinds from the growing federal AI and space budget. Q1 fiscal 2026 saw backlog of $38 billion. Revenue declined for the quarter, but management sees up to 4% full-year revenue growth.

The consensus price target sees 20% upside in the next 12 months, but I believe it is poised to move towards the highest price target of $190 as government AI spending increases.

Parsons Corporation (PSN)

Parsons Corporation (NYSE:PSN) fell significantly earlier this year, much like the two other stocks on this list. It has already rebounded 40% from its trough, and I see more gains to come as 2025 comes to a close in the next four months.

This company sells to U.S. government agencies like the Department of Defense and NASA. Parsons offers everything from data analytics to construction management and has been spearheading AI integration. The focus here is more on physical engineering and infrastructure.

It posted a 5% revenue decline to $1.6 billion in Q2. However, this was mainly due to a confidential contract, and excluding it, revenue grew 13%. I believe Parsons should be back on track for the coming months, as the company raised its full-year 2025 guidance for revenue, adjusted EBITDA, and operating cash flow. Its Q2 backlog grew $111 million from the year-ago quarter to $8.9 billion. 70% of that backlog is already funded. Just this week, it got a $30 million multi-year contract from the Army.

The post Forget Palantir: These 3 Undervalued AI Stocks Are Set to Surge appeared first on 24/7 Wall St..