Palantir Technologies (NYSE: PLTR) and Nvidia (NASDAQ: NVDA) are currently two of the most popular artificial intelligence (AI) stocks on Wall Street, with impressive year-to-date returns of 132% and 150% respectively, ranking them among the top performers in the S&P 500.
Despite their success, analysts predict contrasting trajectories for these two stocks in the coming year.
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Of the 23 analysts covering Palantir, the median price target is $27 per share, indicating a potential 32% downside from its current price of $40.
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On the other hand, among the 65 analysts following Nvidia, the median price target is $150 per share, suggesting a 20% upside from its current price of $125.
Additionally, Palantir is currently considered the most overvalued stock in the S&P 500 based on the difference between its current price and median target price. Conversely, Nvidia is among the highly recommended stocks in the S&P 500, with a significant percentage of buy ratings according to FactSet Research.
It is evident that Wall Street sentiment is bearish on Palantir but bullish on Nvidia. Here are the key points for investors to consider.
Palantir Technologies: Potential 32% Downside
Palantir has a background in counterterrorism and military operations, initially developing analytics software for U.S. federal agencies. The company has since expanded its client base to include international governments and commercial entities.
Palantir’s platforms, Foundry and Gotham, enable customers to utilize data and machine learning models for better decision-making. Its AI platform, AIP, allows clients to leverage large language models and generative AI within their applications.
While some analysts praise Palantir’s technology, others have raised concerns about its complexity and overreliance on consulting services. Despite reporting strong second-quarter results, with revenue increasing 27% to $678 million and non-GAAP net income rising by 80%, the stock’s valuation remains a point of contention.
With Wall Street projecting earnings growth of 21% annually through 2026, the current valuation of Palantir at 125 times adjusted earnings is considered excessively high. This discrepancy between the current price and median target price suggests a potential correction in the future, prompting investors to approach Palantir stock with caution.
Nvidia: Potential 20% Upside
Nvidia is renowned for its graphics processing units (GPUs), which excel in technical computations, particularly for AI workloads. The company dominates the data center GPU market and boasts over 80% market share in AI chips.
Nvidia’s success can be attributed to its superior hardware and diverse portfolio that includes networking gear, server processors, and software tailored for AI workflows. The company reported robust second-quarter results, with revenue surging 122% to $30 billion, driven by strong demand for AI hardware and software.
While Nvidia’s gross profit margin saw a slight decline, likely due to increased competition, analysts expect the company’s earnings to grow at a steady pace. With a fair valuation of 56.6 times adjusted earnings, Nvidia presents a more reasonable investment opportunity compared to Palantir.
Investors may consider initiating a small position in Nvidia stock, with the potential to increase it if the price dips by 10% to 20% in the future.
Conclusion
Palantir Technologies and Nvidia represent contrasting investment opportunities in the AI sector, with analysts favoring Nvidia’s growth potential over Palantir’s current valuation concerns. While Palantir’s future remains uncertain, Nvidia’s strong market position and steady earnings growth make it a more attractive option for investors.