Shares of Palantir Technologies(NASDAQ:PLTR) have more than quadrupled so far this year due to relentless demand for the company’s new artificial intelligence platform. However, the average price target for the stock implies a downside of 48%. In that context Shopify(NYSE: STORE) And Arm positions(NASDAQ:ARM) offer more attractive investment opportunities.
Palantir is currently worth $165 billion, but I think Shopify and Arm could surpass that figure before the end of 2025. Certain Wall Street analysts agree, as detailed below:
Loop Capital analyst Anthony Chukumba recently raised his price target on Shopify to $140 per share, which represents a 23% upside from the current share price of $114. That would give the company a market value of $180 billion.
Morgan Stanley Analyst Lee Simpson has a price target for Arm of $175 per share, which implies an upside of 28% from the current share price of $137. That would give the company a market value of $183 billion.
Here’s what investors need to know about Shopify and Arm.
Shopify integrates physical and digital sales channels into a single dashboard that allows sellers to manage their business across multiple stores. Shopify also offers a wide range of adjacent financial services and merchant solutions, including tools for business-to-business (B2B) commerce, also known as wholesale.
Investors may not consider Shopify an artificial intelligence (AI) company. But automation presents a big opportunity to better serve merchants and improve efficiency, and Shopify is leaning into it. The company has introduced a suite of AI tools called Shopify Magic that help merchants organize storefronts, generate marketing content, write product descriptions, and provide customer service. .
In addition, Shopify uses artificial intelligence internally to support its engineering, sales, and finance teams. This should increase margins and lead to greater profitability in the long term. The potential for AI-driven margin expansion is one reason why Loop Capital’s Anthony Chukumba recently raised his price target.
Shopify reported encouraging financial results in the third quarter that exceeded expectations. Revenue rose 26% to $2.1 billion, driven by equally strong revenue growth in subscription software and merchant services. Meanwhile, non-GAAP earnings rose 46% to $0.35 per diluted share. The company expects comparable sales growth for the fourth quarter.
Furthermore, management highlighted a strong increase in gross merchandise volume in three strategic growth areas: offline (27%), wholesale (145%) and international (30%). Shopify also said the number of international sellers (i.e. outside North America) on its platform increased 36% in the third quarter.
Wall Street expects Shopify’s revenues to grow 44% annually over the next three years. That makes the current valuation of 107 times earnings acceptable. As a caveat, while I think the stock could deliver a 23% return before year-end 2025, putting Shopify ahead of Palantir’s current market value, shares aren’t cheap. So investors should start with a very small position.
Arm develops Central Processing Unit (CPU) architectures and related products such as software development and system design solutions. It licenses that intellectual property to companies that want to build their own chips. These companies benefit by outsourcing some of the chip-related R&D costs while retaining the ability to customize the chip design. Rivals love Intel And AMD do not offer the same flexibility.
CPU architecture defines how the hardware interacts with software. Arm CPUs are known for their energy efficiency, which has made them the industry standard in battery-powered mobile devices. For example, Arm has a market share of over 99% in smartphones. But the company has made progress in improving performance with the latest architectures, leading to market share gains in the data center.
Indeed, NvidiaGrace Blackwell’s Grace Blackwell chips combine GPUs with Arm CPUs to accelerate data center workloads such as artificial intelligence. And the three major public clouds — Amazon Web services, Microsoft Azure, and Alphabet‘s Google Cloud – have deployed Arm CPUs in their data centers. CFO Jason Child said revenue growth from cloud computing customers reached a record high in the June quarter.
More recently, Arm reported September quarter results that beat expectations, but the numbers themselves weren’t all that impressive. Total revenue rose 5% to $844 million due to strong growth in royalty revenue per chip, offset by lower licensing revenue that management attributed to normal timing fluctuations. Meanwhile, non-GAAP earnings fell 17% to $0.30 per diluted share.
However, management expects growth to pick up in the coming quarters, such that full-year revenue and adjusted earnings will rise 22% in fiscal 2025, which ends in March. In addition, Wall Street expects earnings growth of 33% annually through fiscal 2027. In that context, the current valuation of 100 times adjusted earnings is still expensive, but investors will now have to pay a premium to own shares because of the excitement about future developments. AI boom.
Importantly, while I think Arm stock could return 28% over the next year to surpass Palantir’s current market value, investors uncomfortable with the volatility should avoid the stock. And even those who are comfortable with volatility should start with a very small position.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine holds positions at Amazon, Nvidia, Palantir Technologies and Shopify. The Motley Fool holds positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Intel, Microsoft, Nvidia, Palantir Technologies, and Shopify. 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: Two AI Stocks Will Be Worth More Than Palantir by Year End in 2025 Originally published by The Motley Fool
