Palantir Technologies was the best performing member of the S&P500(SNPINDEX: ^GSPC) in 2024. Its stock price rose 340% last year as growing demand for its artificial intelligence platform excited investors. Palantir has grown into a $181.9 billion company, but I think it’s a semiconductor company Arm positions(NASDAQ:ARM) could surpass that figure by 2025.
Here’s what that would mean for shareholders: Arm is currently worth $148 billion. So the stock price would have to rise 23% to $174 per share for the market value to reach $182 billion. I see that as a likely outcome in 2025 due to the growing demand for energy-efficient AI infrastructure. And the following Wall Street analysts have set price targets that support my prediction.
Morgan Stanley analyst Lee Simpson: $175 per share.
Evercore analyst Mark Lipacis: $176 per share.
Bank of America analyst Vivek Arya: $180 per share
Loop Capital Ananda Baruah: $180 per share.
Here’s what investors need to know about this semiconductor stock.
Arm is a semiconductor company that does not sell semiconductors. Instead, it designs the architecture of the central processing unit (CPU) and licenses the intellectual property (IP) to customers. The customers can then use the IP to design custom chips optimized for their needs, while Arm generates revenue through licensing and unit royalties.
Arm also offers related technologies such as system IP and software development tools. The first helps engineers bring together CPUs, GPUs, memory and other hardware to design Arm-based systems. The latter simplifies the development of applications on Arm-based chips in domains such as artificial intelligence (AI), robotics and scientific computing.
Arm chips have historically been more power efficient than competing processors built on the x86 architecture Intel And AMD. Consequently, Arm chips are ubiquitous in mobile devices, including a 99% market share in smartphones. But the company has taken steps to improve performance, increasing its data center market share by six percentage points over the past two years.
Importantly, the three largest public clouds have Arm-based chips designed for their data centers: Graviton processors from Amazon Web Services, Axiom CPUs from Alphabet‘s Google Cloud and Cobalt CPUs from Microsoft Azure. Additionally, Arm CEO Rene Haas recently wrote, “Ten of the world’s largest hyperscalers are developing and deploying Arm-based chips in their data centers.”
A potentially important example is the Nvidia Grace-Blackwell superchip, which pairs Nvidia GPUs with Arm CPUs. CEO Jensen Huang believes the Blackwell platform will be the most successful product in the company’s history, and perhaps the most successful product in the history of computing. That bodes well for Arm, as the company collects royalties per chip.
Image source: Getty Images.
In summary, Arm-based chips are the industry standard in smartphones, and are gaining market share in other product categories, including data centers. That means Arm is increasingly better positioned to benefit as companies invest in artificial intelligence. AI systems require a huge amount of electricity, which means Arm’s low-power chips could be an attractive source of cost savings.
Wall Street expects Arm’s adjusted earnings to grow 33% annually in fiscal 2027, which ends in March 2027. That consensus estimate makes the current valuation of 104 times adjusted earnings look expensive. But Arm has consistently exceeded consensus forecasts in recent quarters, potentially causing Wall Street to underestimate its growth trajectory.
Importantly, if Arm’s earnings grow 33% over the next four reports – that is, the next four times the company releases financial results – its share price could rise 23% to $174, while its price-to-earnings ratio fell slightly . That would bring its market value to $182 billion, surpassing Palantir’s current market value of $181.9 billion.
However, if Arm continues to beat Wall Street’s earnings estimates, its stock price could rise even further. Morgan Stanley analysts have outlined a bull case scenario in which the stock reaches $300 per share before the end of 2025. That implies an upside of 112% from the current share price of $141.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Bank of America is an advertising partner of Motley Fool Money. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon, Nvidia and Palantir Technologies. The Motley Fool holds positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Bank of America, Intel, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls at Microsoft, short February 2025 $27 calls at Intel, and short January 2026 $405 calls at Microsoft. The Motley Fool has a disclosure policy.
Prediction: 1 AI Stock Will Be Worth More Than Palantir Technologies by Year End in 2025 Originally published by The Motley Fool
