Historically, certain technologies have played a central role in the rise of the stock market. This includes the Internet in the 1990s, mobile devices in the 2000s, and cloud computing in the 2010s. Artificial intelligence is shaping the technology that will define the next decade, and these Wall Street analysts are extremely optimistic about this. Nvidia (NASDAQ:NVDA) And Palantir Technologies (NYSE:PLTR).
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Phil Panaro of Boston Consulting Group estimates that Nvidia will be an $800 stock by 2030. This prediction implies an upside of about 560% from its current stock price of $121.
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Hilary Kramer of Greentech Research believes Palantir could become a $100 stock within a few years. This forecast implies an upside of approximately 175% from the current stock price of $36.40.
Investors should never rely too much on forecasts. A recent study found that only half of price targets correctly predict the direction a stock will move, meaning far fewer predict the actual price with any degree of accuracy. However, Nvidia and Palantir deserve a closer look.
Nvidia: implied increase of 560%
Nvidia dominates the data center market graphics processing units (GPU), chips that perform technical calculations faster and more efficiently than central processing units (CPU). In practice, GPUs are used to accelerate complex workloads such as training machine learning models and running artificial intelligence (AI) applications.
Nvidia GPUs are the industry standard. Not only because they consistently outperform competing products, but also because Nvidia has a more robust supporting software ecosystem that simplifies application development. This ecosystem, called CUDA, makes Nvidia GPUs the go-to option for developers. As proof, the company holds between 70% and 95% market share in AI chips, according to analysts.
Boston Consulting Group’s Phil Panaro believes Nvidia’s next-generation GPU, called Blackwell, will further strengthen the company’s dominance in AI as new chips begin to trickle into the market in the fourth quarter . Panaro noted that Nvidia shares were trading sideways in the months leading up to the release of its previous generation of GPUs, called Hopper.
“Once they released it, the stock went up several hundred percent. So I see the same thing happening with Blackwell,” he said in a recent interview with Schwab Network. Additionally, Panaro also said that it expects Nvidia to generate $600 billion in revenue in fiscal year 2031 (ending January 2031). This implies growth of 33% per year, which roughly matches Grand View Research’s prediction that AI spending will reach 36% per year through 2030.
Nvidia undoubtedly has a strong position in a rapidly growing market and has solidified its dominance by diversifying into adjacent verticals such as networking equipment and cloud infrastructure services designed for AI workloads. However, I see a valuation problem in Panaro’s forecasts.
Maybe Nvidia will generate $600 billion in revenue in fiscal 2031. But a stock price of $800 implies a market cap close to $20 trillion. So, Panaro’s earnings estimate implies a price-to-sales ratio of 33. Nvidia currently trades at 31 times sales, which is actually a premium to the three-year average of 26 times sales. I doubt Nvidia will get a higher valuation in six years.
That said, I think Nvidia stock can outperform the stock S&P500 until the end of the decade, perhaps substantially. Patient investors should consider purchasing a small position in the stock today.
Palantir Technologies: implied increase of 175%
Palantir sells analytics software to commercial organizations and government agencies. Its products include the Foundry and Gotham data management platforms, as well as the AIP artificial intelligence platform. These tools help customers integrate data, develop and manage machine learning models, and integrate these assets into analytical applications that improve decision making.
In August, Forestry research recognized Palantir as a leading provider of machine learning and artificial intelligence platforms. The report analyzes companies based on the strength of their current offering and their growth strategy. Palantir has outperformed all other providers in terms of current offerings, but Alphabet And C3.ai received higher scores for product development strategy.
“Palantir is a true artificial intelligence company that actually looks at data, analyzes it and uses it to make real decisions,” Hilary Kramer, an analyst at Greentech Research, told Fox Business. She dismissed Goldman Sachs‘ price target of $16 per share, implying a 55% downside from the current stock price of $36.40, saying large investment banks have yet to appreciate the full potential of Palantir software.
I think these investment banks would totally disagree on the basis of valuation. Like Nvidia, Palantir has a strong presence in a rapidly growing market. (IDC) estimates that spending on AI platforms will grow 51% annually through 2030. But Palantir trades at 217 times earnings, and the Wall Street consensus forecasts annual earnings growth of 24% through over the next three years.
These numbers result in an outrageous PEG ratio of 9. For context, PEG ratios of 1 or 2 are generally considered reasonable. Given the current valuation, Wall Street is rather bearish on Palantir. The median price target of $27 per share implies a 26% downside from the current stock price. Personally, I would avoid this stock until the valuation drops. This doesn’t necessarily mean that Palantir’s stock will collapse anytime soon. I’m just pointing out that the stock is very expensive, which means the risk-reward profile is heavily weighted toward risk.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennevine holds positions in Nvidia and Palantir Technologies. The Motley Fool holds positions and recommends Alphabet, Goldman Sachs Group, Nvidia and Palantir Technologies. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.
Once-in-a-decade opportunity: 2 AI stocks to buy before they skyrocket 175% and 560%, according to some Wall Street analysts was originally published by The Motley Fool