Interest in artificial intelligence exploded following the release of ChatGPT in November 2022. Since that time, Palantir Technologies (PLTR 2.41%) shares have added 1,650% and Nvidia (NVDA 0.68%) shares have advanced 980%. Yet, many Wall Street analysts think both stocks are undervalued.
- Among 30 analysts, Palantir has a median target price of $199 per share. That implies 51% upside from its current share price of $132.
- Among 74 analysts, Nvidia has a median target price of $250 per share. That implies 37% upside from its current share price of $183.
Between the two, Wall Street's consensus estimates suggest Palantir is the best stock to buy right now. Here's what investors should know.
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Palantir Technologies: 51% upside implied by the median target price
Palantir develops data integration and analytics platforms, as well as adjacent artificial intelligence (AI) software that lets developers build large language models into workflows and applications. The company has distinguished itself through its use of forward deployed engineers, onsite consultants that work directly with clients to build custom applications atop its core platforms.
Palantir has also differentiated itself by building its analytics platforms around a decision-making framework known as an ontology. Machine learning models integrated into the ontology form a feedback loop that delivers deeper, more precise insights over time as more data is collected. Forrester Research recently recognized Palantir as a leader in AI decisioning platforms.
Palantir's business fundamentals are impressive. Revenue growth has accelerated in 10 consecutive quarters, and the company achieved a Rule of 40 score (revenue growth plus non-GAAP operating margin) of 127% in the fourth quarter, which is simply exceptional. Morgan Stanley analyst Sanjit Singh writes, "It is hard to find a better fundamental story in software than Palantir."
Here's the big picture: Palantir has positioned itself as the enterprise standard in AI platforms, a market forecast to grow at 38% annually through 2033, according to Grand View Research. Yet, the stock currently trades at 205 times earnings, a very expensive valuation even for a company whose earnings are projected to increase at 45% annually over the next three years.
Investors should be cautious with Palantir even though the stock is down 37% from its high. Owning a small position is fine, but shares could fall much further if the company fails to meet Wall Street's lofty expectations.
NASDAQ: PLTR
Key Data Points
Nvidia: 37% upside implied by the median target price
Graphics processing units (GPUs) are the most common type of AI accelerator, and Nvidia leads the market with 80% to 90% revenue share. One reason the company has become so dominant is superior performance. Its GPUs consistently outpace other accelerators at the MLPerf benchmarks, the industry standard in measuring the performance of AI systems in training and inference workloads.
However, Nvidia is truly formidable due to its full-stack strategy. It pairs superior GPUs with other hardware (CPUs, interconnects, and networking solutions) to build rack-scale computing platforms. Beyond hardware, Nvidia also offers an unmatched ecosystem of code libraries and frameworks that support AI application development across a broad range of use cases, from recommender systems to autonomous machines.
In short, Nvidia not only designs the fastest AI accelerators on the market, but also designs most of the infrastructure required to train, deploy, and manage AI applications across the enterprise. That full-stack strategy lets the company optimize system-level performance and power efficiency in ways that less vertically integrated suppliers cannot. It also extends Nvidia's total addressable market well beyond GPUs.
Here's the big picture: Analysts generally expect Nvidia to maintain its market leaderships in AI infrastructure despite tough competition. That points to robust growth for many years to come. Indeed, Wall Street estimates the company's earnings will increase at 38% annually in the next three years. That makes the current valuation of 45 times earnings look relatively cheap. Patient investors should feel comfortable buying this stock today.
