Nvidia and Palantir’s stock prices have more than doubled this year, but Wall Street is bullish on one and bearish on the other.
Palantir Technologies (PLTR 1.96%) and Nvidia (NVDA 1.69%) are two of the hottest artificial intelligence (AI) stocks on Wall Street. In fact, with year-to-date returns of 132% and 150%, respectively, they rank among the five best-performing stocks in the S&P 500.
However, Wall Street expects stocks to move in the opposite direction over the next year.
According to the 23 analysts who follow Palantir, the median price target is $27 per share, implying a 32% downside from the current share price of $40. Among the 65 analysts following Nvidia, the median price target is $150 per share, implying a 20% upside from the current share price of $125.
Additionally, Palantir is the most overvalued stock in the S&P 500 based on the difference between its current price and the median price target. Meanwhile, Nvidia ranks as one of the most highly recommended stocks in the S&P 500 in terms of percentage of buy ratings, according to FactSet Research.
Suffice it to say, Wall Street is overwhelmingly bearish on Palantir, but extremely bullish on Nvidia. The most important details for investors are:
Palantir Technologies: Median price target suggests 32% downside
Palantir has deep roots in counterterrorism and covert military operations. The company spent its early years building analytical software for federal agencies in the U.S. intelligence community. However, it has since expanded its customer base to include international governments and commercial organizations.
Palantir’s data operations platforms, Foundry and Gotham, enable customers to incorporate data and machine learning models into analytical applications to improve decision-making. The company’s AI platform, AIP, also enables commercial and government clients to use language models and generative AI at scale within Foundry and Gotham.
Some analysts praise Palantir’s sophisticated technology. For example, the company was a top-ranked vendor in Dresner Advisory Services’ 2024 market study for artificial intelligence, data science, and machine learning platforms. Forrester Research was recently recognized for its leadership in AI and machine learning platforms.
Other analysts were less impressed. Gartner rated Palantir lower than 12 other vendors for data integration capabilities due to overreliance on consulting services. This means that some customers find Palantir’s software too complex and difficult to use independently. Gartner also omitted Palantir in its latest report on data science and machine learning platforms.
Palantir reported second-quarter financial results that beat expectations for both revenue and bottom line. Sales rose 27% to $678 million, marking the fifth consecutive quarter of accelerating sales growth. Meanwhile, non-GAAP (generally accepted accounting principles) net income increased 80% to $0.09 per diluted share. And management provided better-than-expected guidance for the third quarter.
The only issue with this stock is its valuation. Wall Street expects Palantir’s profits to rise 21% annually through 2026. This estimate makes the current valuation of 125 times adjusted earnings look unusually expensive. As mentioned earlier, Palantir is the most overvalued stock in the S&P 500 based on the divergence between its median price target and current price.
So either Wall Street analysts are significantly undervaluing Palantir, or the stock is headed for a major correction down the road. Either way, investors can save themselves a lot of trouble by avoiding Palantir stock now, and shareholders should at least consider paring their positions.
Nvidia: Median price target suggests 20% upside
Nvidia is best known for inventing the graphics processing unit (GPU), a semiconductor that performs technical calculations much faster and more efficiently than a central processing unit (CPU). Nvidia GPUs are the gold standard for accelerating compute-intensive data center workloads such as AI training and inference.
Last year, Nvidia accounted for 98% of data center GPU shipments, and the company now has more than 80% market share in AI chips, according to analysts. Part of that advantage is due to superior hardware. But it’s also a product of the company’s broad portfolio, which spans adjacent hardware such as networking gear and server processors, as well as software and cloud infrastructure services designed to support AI workflows.
In the words of The Wall Street Journal’s Zoe Thomas, “NVIDIA already dominates the chip market driving the artificial intelligence boom. Now, the company is playing a growing role in the design of AI data centers. ” This gives Nvidia a significant competitive advantage. Not only can the company monetize AI in a variety of ways, but it can also offer complete AI systems to customers rather than individual components.
Nvidia reported strong financial results for the second quarter of fiscal 2025 (ending July 2024). Strong demand for AI hardware and software drove revenue up 122% to $30 billion. Meanwhile, non-GAAP earnings increased 152% to $0.68 per diluted share. Only one metric was somewhat disappointing. Gross profit margin decreased 3.3 percentage points sequentially. This may indicate that pricing power has weakened somewhat due to increased competition from other chipmakers.
Looking ahead, Wall Street expects Nvidia’s adjusted earnings to grow 35% annually through fiscal 2027, which ends in January 2027. Compared to that estimate, the current valuation of 56.6 times adjusted earnings is fair and certainly much more reasonable than Palantir’s price. Patient investors should consider buying a small position in Nvidia stock today and building a slightly larger position in the future if the stock drops 10% to 20%.
Trevor Jennewine has held positions at Nvidia and Palantir Technologies. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
