Once-in-a-decade opportunity: 2 AI stocks to buy before they surge 175% and 560%, according to some Wall Street analysts

Historically, certain technologies have played a key role in driving stock market gains. This includes the Internet in the 1990s, mobile devices in the 2000s and cloud computing in the 2010s. Artificial intelligence is shaping up to be the technology that will define the next decade, and Wall Street analysts are extremely optimistic about it Nvidia (NVDA -2.13%) AND Palantir Technologies (PLTR -0.70%).

• Phil Panaro of Boston Consulting Group believes that Nvidia’s stock will be worth $800 by 2030. This forecast assumes an approximately 560% upside from the current share price of $121.
• Hilary Kramer of Greentech Research believes that Palantir shares could trade at $100 within a few years. This forecast assumes an increase of approximately 175% from the current share price of $36.40.

Investors should never rely too heavily on forecasts. A recent study found that only half of price targets correctly predict a stock’s direction, which means far fewer of them predict the actual price with any accuracy. However, Nvidia and Palantir require further consideration.

Nvidia: 560% suggested improvement

Nvidia dominates the market for data center graphics processing units (GPUs), which are 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 supporting software ecosystem that simplifies application development. This ecosystem, called CUDA, makes Nvidia GPUs a favorite option for developers. According to analysts, the company has between 70% and 95% of the AI ​​chip market share.

Boston Consulting Group’s Phil Panaro believes Nvidia’s next-generation GPU, called Blackwell, will further strengthen the company’s artificial intelligence dominance as new chips begin to penetrate the market in the fourth quarter. Panaro noted that Nvidia’s stock had been declining in the months leading up to the release of the previous generation of GPUs, called Hopper.

“When 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. Additionally, Panaro also said he expects Nvidia to generate $600 billion in revenue in fiscal year 2031 (end of January 2031). This represents an increase of 33% per year, which roughly matches Grand View Research’s prediction that AI spending will grow at 36% per year through 2030.

Nvidia undoubtedly has a strong position in the rapidly growing market and has strengthened its dominance by expanding into adjacent industries such as networking equipment and cloud infrastructure services designed for AI workloads. Still, I see a problem with pricing Panaro’s forecast.

Perhaps Nvidia will generate $600 billion in revenue in fiscal year 2031. However, a share price of $800 implies a market capitalization close to $20 trillion. So Panaro’s revenue estimates imply a price-to-sales ratio of 33. Nvidia is currently trading at 31x sales, which is actually a premium to the three-year average of 26x sales. I doubt Nvidia will demand a higher valuation in six years.

Having said that, I think Nvidia stock could outperform Nvidia stock S&P500 by the end of the decade, perhaps to a significant extent. Patient investors should consider purchasing a small position on the stock market today.

Palantir Technologies: 175% suggested improvement

Palantir sells analytics software to commercial organizations and government agencies. Its products include the Foundry and Gotham data management platforms and the AIP artificial intelligence platform. 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 Forrest’s research recognized Palantir as a leader among providers of machine learning and artificial intelligence platforms. The report analyzed companies in terms of the strength of their current offerings and development strategies. Palantir has outperformed all other providers in terms of its current offerings, but Alphabet AND C3.ai received higher marks for its product development strategy.

“Palantir is a true artificial intelligence company that really looks at data, analyzes it and uses it to make real decisions,” Greentech Research analyst Hilary Kramer told Fox Business. She moved aside Goldman Sachsa price target of $16 per share, representing a 55% decline from the current share price of $36.40, meaning major investment banks have not yet appreciated the full potential of Palantir’s software.

I think these investment banks would wholeheartedly disagree based on valuation. Like Nvidia, Palantir has a strong presence in a rapidly growing market. International Data Corp. (IDC) estimates that spending on AI platforms will grow 51% annually through 2030. However, Palantir trades at 217 times earnings, and the Wall Street consensus is for 24% annual earnings growth over the next three years.

These numbers result in an outrageous PEG ratio of 9. For context, PEG ratios of 1 or 2 are usually considered reasonable. Given the current valuation, Wall Street is quite bearish on Palantir. The $27 per share average price target represents a 26% downside from the current share price. Personally, I would stay away from this stock until the valuation comes down. This doesn’t necessarily mean Palantir’s stock will crash anytime soon. I’m simply pointing out that the stock is very expensive, which means the risk-reward profile is heavily skewed towards risk.

Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Trevor Jennewine holds positions at Nvidia and Palantir Technologies. The Motley Fool has 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.