Wall Street analysts are bullish on Nvidia and bearish on Palantir.
Consultancy PwC predicts that artificial intelligence (AI) will contribute more than $15 trillion to the global economy by 2030. Investors hoping to profit have flocked to AI-related stocks, including Nvidia. (NVDA -0.03%) and Palantir Technologies (supplement 1.95%) These are two of the most popular choices.
Over the past two years, Nvidia’s stock has risen 728% and Palantir’s stock has risen 348%. However, Wall Street analysts expect the two companies’ stock prices to move in opposite directions over the next 12 months. Here are the details:
Nvidia’s average target of $150 per share implies a 26% upside from the current share price of $119. Palantir’s average target of $28 per share implies a 20% downside from the current share price of $35.
Here’s what investors need to know about these AI stocks.
1. NVIDIA
Nvidia is best known for its graphic processing units (GPUs), chips that have become the industry standard for accelerating complex data center workloads like training machine learning models and running AI applications. In March, Forrester Research wrote that “Nvidia is at the forefront of AI infrastructure around the world. Without Nvidia GPUs, modern AI would not be possible.”
But the chipmaker is truly strong in offering a full-stack computing platform made up of adjacent hardware, software, and services. CEO Jensen Huang said Nvidia has established leadership in generative AI networking gear, and its first server central processing unit (CPU) is on its way to becoming a multibillion-dollar product line.
Similarly, Nvidia said its software and services business is on track to generate $2 billion in revenue this year, driven by 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 for specific use cases, including conversational agents, recommendation systems and autonomous robots.
Nvidia reported strong financial results for the second quarter of fiscal 2025 (ended July 2024). Revenues grew 122% to $30 billion and non-GAAP (generally accepted accounting principles) earnings increased 152% to $0.68 per diluted share, driven by strong demand for AI hardware and software. More importantly, the company is well-positioned to continue this momentum.
Nvidia’s next-generation datacenter GPU, Blackwell, is due to launch later this year and is generating a lot of excitement. Earlier this year, CEO Jensen Huang predicted that the Blackwell architecture platform is likely to be the most successful product in our history.
Going forward, Wall Street expects NVIDIA’s adjusted earnings to grow 49% annually through fiscal 2026 (ending January 2026). With this forecast, the current valuation of 54 times adjusted earnings seems reasonable. Patient investors should consider making small purchases of NVIDIA shares today.
2. Palantir Technologies
Palantir sells data analytics software. Its platform helps companies manage data, develop machine learning models, and integrate their digital assets into applications that improve decision-making. Palantir describes its core software products, Foundry and Gotham, as an operating system that connects 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-scale language models and generative AI to Gotham and Foundry with AIP, its artificial intelligence platform. The company also hosted AIP Bootcamp, an educational event where potential customers learned how to use AIP on their own data in a few days, and restructured its go-to-market strategy around the new product.
In August, Forrester Research recognized Palantir as a leader among AI and machine learning platform vendors. “Palantir is quietly becoming one of the largest players in this market,” the analyst wrote. Palantir received the highest score for current product offerings, while competitors Alphabet and C3.ai received higher scores for growth strategies.
Palantir reported strong second quarter results, with customer numbers growing 41% to 593 and average customer spend growing 14% over the past year. As a result, revenue grew 27% to $678 million, its fifth consecutive quarter of acceleration, and non-GAAP net income increased 80% to $0.09 per diluted share.
CEO Alex Karp expects the company to maintain momentum going forward: “We see strong and persistent demand for our software for an effective enterprise platform that brings the power of artificial intelligence to large institutions, and it shows no signs of slowing.”
The problem is valuation. Wall Street expects adjusted earnings to grow 22% annually through 2025, which makes the current valuation of 109 times adjusted earnings look expensive. Personally, I agree with Wall Street: Palantir seems overvalued and I wouldn’t be surprised to see a major correction in the future. Investors should consider reducing their positions.
Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Trevor Jennewine has invested in Nvidia and Palantir Technologies. The Motley Fool has invested in and recommends Alphabet, Nvidia, and Palantir Technologies. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.
