Historically, certain technologies have played a crucial role in the stock market’s rise. That includes the Internet in the 1990s, mobile devices in the 2000s, and cloud computing in the 2010s. Artificial intelligence is moving toward the technology that will define the next decade, and these Wall Street analysts are extremely optimistic about it Nvidia (NASDAQ: NVDA) And Palantir Technologies (NYSE:PLTR).
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Boston Consulting Group’s Phil Panaro believes Nvidia will have an $800 share by 2030. That forecast implies an upside of about 560% from the current stock price of $121.
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Hilary Kramer of Greentech Research believes Palantir could be 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 heavily on forecasts. A recent survey found that only half of price targets correctly predict which direction a stock will move, meaning far fewer people can predict the actual price with any degree of accuracy. However, Nvidia and Palantir deserve further consideration.
Nvidia: 560% implicit advantage
Nvidia dominates the market for data center graphics processing units (GPUs), chips that perform technical calculations faster and more efficiently than central processing units (CPUs). 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 ecosystem of supporting software that simplifies application development. That ecosystem, called CUDA, makes Nvidia GPUs the go-to option for developers. As proof, the company has 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 cement the company’s dominance in AI as new chips start to trickle into the market in the fourth quarter. Panaro noted that Nvidia stock traded 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 hundreds of percent. So I see the same thing happening with Blackwell,” he said in a recent interview with Schwab Network. In addition, Panaro also said that he expects Nvidia to generate $600 billion in revenue in fiscal year 2031 (end of January 2031). That implies annual growth of 33%, which roughly matches Grand View Research’s prediction that AI spending will reach 36% annually through 2030.
Nvidia undoubtedly has a strong position in a fast-growing market and has cemented its dominance by focusing on adjacent verticals such as networking equipment and cloud infrastructure services designed for AI workloads. Still, I see a valuation problem with Panaro’s forecast.
Perhaps Nvidia will generate $600 billion in revenue in fiscal 2031. But a stock price of $800 implies a market cap of almost $20 trillion. So Panaro’s revenue estimate implies a price-to-sales ratio of 33. Nvidia currently trades at 31 times sales, and that’s actually a premium to the three-year average of 26 times sales. I doubt Nvidia will have a higher valuation in six years.
That said, I think Nvidia stock can outperform the S&P500 until the end of the decade, perhaps substantially. Patient investors should consider buying a small position in the stock today.
Palantir Technologies: 175% implicit upside
Palantir sells analytics software to commercial organizations and government agencies. Products include the data management platforms Foundry and Gotham, and the artificial intelligence platform AIP. These tools help customers integrate data, develop and manage machine learning models, and incorporate these assets into analytical applications that improve decision making.
In August, Forest research recognized Palantir as a leader among machine learning and artificial intelligence platform providers. The report analyzed companies based on the strength of their current offering and growth strategy. Palantir surpassed all other vendors in terms of its current offering, but Alphabet And C3.ai received higher scores for product development strategy.
“Palantir is a true artificial intelligence company that really looks at data, analyzes it and uses it for actual decision-making,” Greentech Research analyst Hilary Kramer told Fox Business. She swept aside Goldman Sachs‘ price target of $16 per share, implying 55% downward pressure from the current stock price of $36.40, indicating that major investment banks have yet to appreciate the full potential of Palantir’s software.
I think those investment banks would definitely disagree based on the valuation. Like Nvidia, Palantir has a strong presence in a fast-growing market. The International Data Corp. (IDC) estimates that spending on AI platforms will increase 51% annually through 2030. But Palantir trades at 217 times earnings, and the Wall Street consensus calls for 24% annual earnings growth over the next three years.
These numbers indicate an excessive PEG ratio of 9. For context, PEG ratios of 1 or 2 are generally considered reasonable. Given its current valuation, Wall Street is quite bearish on Palantir. The average price target of $27 per share implies a decline of 26% from the current share price. Personally, I would avoid this stock until the valuation drops. That doesn’t necessarily mean Palantir’s stock will crash anytime soon. I’m just pointing out that the shares are very expensive, which means the risk-return profile is heavily skewed towards risk.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine holds positions at Nvidia and Palantir Technologies. The Motley Fool holds positions in and recommends Alphabet, Goldman Sachs Group, Nvidia, and Palantir Technologies. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.
A once-in-a-decade opportunity: two AI stocks to buy before they rise 175% and 560%, according to certain Wall Street analysts. Originally published by The Motley Fool
