Wall Street analysts are bullish on Nvidia and bearish on Palantir.
Consultancy PwC estimates artificial intelligence (AI) will contribute more than $15 trillion to the global economy by 2030. Investors hoping to benefit are piling into AI stocks, and Nvidia (NVDA -0.03%) and Palantir Technologies (PLTR 1.95%) have been two of the most popular choices.
In the last two years, Nvidia shares surged 728%, and Palantir shares advanced 348%. But Wall Street analysts expect the stocks to move in opposite directions over the next 12 months, as detailed below:
- Nvidia’s median target of $150 per share implies 26% upside from its current share price of $119.
- Palantir’s median target of $28 per share implies 20% downside from its current share price of $35.
Here’s what investors should know about these AI stocks.
1. Nvidia
Nvidia is best known for its graphics processing units (GPUs), chips that have become the industry standard in accelerating complex data center workloads such as training machine learning models and running AI applications. In March, Forrester Research wrote, “Nvidia sets the pace for AI infrastructure worldwide. Without Nvidia GPUs, modern AI wouldn’t be possible.”
However, the chipmaker is truly formidable because it provides a full-stack computing platform that comprises adjacent hardware, software, and services. Nvidia has secured leadership in generative AI networking gear, and its first server central processing unit (CPU) is ramping toward a multibillion-dollar product line, according to CEO Jensen Huang.
Likewise, Nvidia says its software and services business will approach a $2 billion revenue run rate this year due to strength from its AI Enterprise offering. Nvidia AI Enterprise is a software platform that streamlines data preparation and model training, as well as the development and deployment of AI applications. The platform includes frameworks that address specific use cases, including conversational agents, recommender systems, and autonomous robotics.
Nvidia reported strong financial results in the second quarter of fiscal 2025 (ended July 2024). Revenue increased 122% to $30 billion on strong demand for AI hardware and software, and non-GAAP (generally accepted accounting principles) earnings surged 152% to $0.68 per diluted share. More importantly, the company is well positioned to maintain that momentum.
Nvidia’s next generation of data center GPUs, called Blackwell, will ramp up later this year, and the market is rife with anticipation. Earlier this year, CEO Jensen Huang predicted, “The Blackwell architecture platform will likely be the most successful product in our history.
Looking ahead, Wall Street expects Nvidia’s adjusted earnings to grow at 49% annually through fiscal 2026 (ends January 2026). That estimate makes the current valuation of 54 times adjusted earnings seem reasonable. Patient investors should consider purchasing a small position in Nvidia stock today.
2. Palantir Technologies
Palantir sells data analytics software. Its platforms help enterprises manage data, develop machine learning models, and integrate those digital assets into applications that improve decision-making. Palantir describes its core software products, Foundry and Gotham, as operating systems that connect data, decisions, and operations. Use cases range from managing supply chains to mitigating financial risk to optimizing manufacturing.
Last year, Palantir added support for large language models and generative AI to Gotham and Foundry with AIP (Artificial Intelligence Platform). The company also reoriented its go-to-market strategy around the new product with AIP Bootcamps, instructional events where potential customers learn to use AIP on their own data in a matter of days.
In August, Forrester Research recognized Palantir as a leader among AI and machine learning platform vendors. Analysts wrote, “Palantir is quietly becoming one of the largest players in this market.” Palantir was awarded the highest score for its current product offering, but competitors Alphabet and C3.ai earned higher scores for their growth strategy.
Palantir reported encouraging financial results in the second quarter. Its customer count increased by 41% to 593, and the average customer spent 14% more over the past year. In turn, revenue increased 27% to $678 million, the fifth sequential acceleration, and non-GAAP net income jumped 80% to $0.09 per diluted share.
Going forward, CEO Alex Karp expects the company to maintain its momentum. “The persistent and unbridled demand for our software, for an effective enterprise platform that makes artificial intelligence capabilities useful to large institutions, shows no signs of relenting.”
The problem is valuation. Wall Street forecasts adjusted earnings growth of 22% annually through 2025. That makes the current valuation of 109 times adjusted earnings look pricey. Personally, I agree with Wall Street. Palantir looks overvalued, and I would not be surprised to see a substantial correction in the future. Investors should consider trimming their positions.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Nvidia and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Nvidia, and Palantir Technologies. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.
