Forget Palantir Stock at $140 per Share. Buy This Artificial Intelligence (AI) Chip ETF Instead.

Palantir (NASDAQ: PLTR) has been one of the best-performing stocks over the past few years, with a 113% average annualized return over the past three years.

The artificial intelligence (AI) software juggernaut, which governments and enterprises use to analyze massive amounts of data, has seen its stock price decline significantly in 2026, down about 20% year to date to around $140 per share.

It's not for a lack of growth or prospects. The company just posted numbers that show revenue rose 85% year over year and net income skyrocketed 306%. Palantir also raised its guidance for revenue this fiscal year to $7.65 billion to $7.66 billion, which would be a 71% increase over last year. That would be a higher growth rate than 2025's 56% revenue increase.

But this strong earnings report and outlook did not move the needle higher for Palantir stock; in fact, the stock price dropped 7% after the report was released. This is likely because it is trading at an extremely high multiple. Palantir has a price-to-earnings (P/E) ratio of 180 and a forward P/E of 110 -- and that's down from 412 and 177 at the start of the year. Investors just don't see the type of growth needed to sustain that high multiple, thus the sell-off.

Investors looking for the explosive growth of AI stocks may want to consider a slightly less risky option, the VanEck Semiconductor ETF (NASDAQ: SMH).

A 66% 10-year average annual return

The VanEck Semiconductor ETF is one of the largest and most successful AI chip exchange-traded funds (ETFs) on the market.

The ETF has returned a sparkling 76% year to date, crushing the Nasdaq Composite, and 155% over the past 12 months. Further, it has average annualized returns of 66% over the past five years and 10 years.

It invests in AI chip makers, tracking the MVIS US Listed Semiconductor 25 Index, which includes the 25 largest semiconductor stocks in the U.S. Its top three holdings are Nvidia, Taiwan Semiconductor Manufacturing, and Micron Technology.

SMH is highly concentrated in chipmakers, an area that is expected to continue to boom for the next several years as systems move increasingly toward AI computing. But it will always include the largest chipmakers, meaning as trends within AI computing shift, this ETF will shift, too.

The VanEck Semiconductor ETF is not cheap either, but with a P/E ratio of 49, it trades at a lower valuation than Palantir. Plus, the portfolio is filled with some 25 AI chip stocks with massive earnings power that could justify the high multiple.

Palantir has been on an incredible run, but at that high multiple, it is a much riskier bet than a diversified portfolio of the best chip stocks on the market with a history of delivering eye-popping returns.

However, investors should keep allocations to an aggressive growth ETF like SMH on the smaller side within a diversified portfolio, as it's highly volatile and prone to sharp negative short-term swings.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology, Nvidia, Palantir Technologies, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.