Year to date, Palantir Technologies (PLTR +2.79%) stock has returned 140% and Intel (INTC 0.62%) stock has returned 101%. However, certain Wall Street analysts believe the stocks are wildly overvalued. Following are the most pessimistic 12-month forecasts.
- Rishi Jaluria at RBC Capital has set Palantir with a target price of $50 per share. That implies 72% downside from its current share price of $181.
- Matt Bryson at Wedbush and Amanda Tan at DBS Bank have set Intel with a target price of $20 per share. That implies 50% downside from its current share price of $40.50.
Here's what investors should know about Palantir and Intel.
Image source: Getty Images.
Palantir Technologies: 72% implied downside
Palantir builds data analytics and artificial intelligence (AI) platforms for customers in the public and private sectors. Its key differentiator is ontology-based software, meaning its products are designed around a decisioning framework made more effective over time by machine learning (ML) models. Use cases span supply chain management, retail inventory optimization, financial fraud detection, and battlefield analytics.
Last year, Forrester Research recognized Palantir as the most capable AI/ML platform on the market, ranking it above Alphabet's Google, Amazon Web Services, and Microsoft Azure. The analysts wrote, "Palantir is quietly becoming one of the largest players in this market." Earlier this year, Forrester ranked Palantir as a leader in AI decisioning platforms.
Glowing recognition from industry analysts has come alongside strong financial results. In the third quarter, Palantir's revenue rose 63% to $1.1 billion, the ninth straight acceleration, and non-GAAP earnings more than doubled to $0.21 per diluted share. Management said strong demand for its artificial intelligence platform was key to its strong performance.
The problem with Palantir is valuation. Shares currently trade at 160 times sales, which makes it the most expensive stock in the S&P 500 by a wide margin. AppLovin is the next closest stock at 57 times sales. That means Palantir could lose nearly two-thirds of its value and still be the most expensive stock in the index.
Palantir has a strong competitive position in AI platforms, a market forecast to grow at 38% annually through 2033. But the valuation "seems unsustainable," according to Rishi Jaluria at RBC Capital. I completely agree. Palantir shares may move higher in the coming months, but a major correction is almost inevitable at some point. Investors should either avoid the stock or keep any positions very small.
NASDAQ: PLTR
Key Data Points
Intel: 50% implied downside
Intel is the market leader in central processing unit (CPU) sales across personal computers and data center servers, but the company has lost substantial market share in both CPU categories to AMD and Arm. Intel sees an opportunity to benefit as AI drives demand for CPUs, but the company has so far failed to capitalize. In fact, it famously passed on an opportunity to invest in OpenAI in 2017.
Meanwhile, Intel Foundry, the external chip manufacturing business that was launched in 2021, only recently won its first major customer (reportedly Microsoft). Initially, Intel aimed to surpass Samsung as the second-largest foundry by the end of the decade, but the odds of that happening are quite slim. Intel's history of execution missteps is unlikely to inspire confidence.
Importantly, Intel earlier this year said it may have to discontinue development of its next-generation 14A chip process technology and all leading-edge nodes thereafter if it cannot "secure a significant external customer." It's unclear whether the recent customer win will provide sufficient capital to prevent that outcome, so the company may yet have to exit the chip manufacturing business.
Intel reported 3% sales growth in the recent quarter. Meanwhile, AMD and Arm reported sales growth of 36% and 34%, respectively. Despite sluggish growth, Intel shares currently trade at 3.3 times sales, a premium to the five-year average of 2.4 times sales. I doubt the stock will fall 50%, but the combination of market share losses and a valuation that is high by historical standards is a good reason for investors to avoid the stock.
