Analyst: Nvidia Stock Could Double to $400 by 2027, Outperforming Palantir

Keithen Drury, an analyst at The Motley Fool, published a report on Yahoo Finance, positioning Nvidia as a more promising investment than Palantir in the artificial intelligence sector. The prediction is clear: by 2027, Nvidia's stock could double its value to $400 per share, while Palantir's might remain flat or even drop.

Drury explains that while many investors feel they missed the AI boat by not buying Nvidia stock earlier, we are only at the end of AI's “Act 1”—the research and development phase. What's coming next is “Act 2”: the global rollout of this technology, which opens up new investment opportunities.

Nvidia: The Foundation of Artificial Intelligence

Nvidia handles the infrastructure side of AI. It manufactures Graphics Processing Units (GPUs) and other support products. Think of GPUs as the brains of machines performing complex calculations, and in that field, Nvidia's are among the best. That's why they dominate a large portion of the data center AI accelerator market.

According to Nvidia's own estimates, the five major hyperscalers will spend nearly $800 billion this year on capital expenditures, and that figure is expected to rise to $1.3 trillion next year. This represents significant growth. In fact, Nvidia has already publicly announced its own estimated 2027 revenue growth rate: 70%. Currently, Nvidia trades at 12.7 times its expected earnings for next year.

Palantir: Data Analytics Software for Governments and Businesses

Palantir, on the other hand, focuses on AI applications. Its AI-powered data analytics software is widely used by both governments and commercial clients. Although it started primarily working with the government sector, in the third quarter, its U.S. commercial revenue surpassed its government revenue for the first time.

In that same quarter, its revenue grew 96% year over year, continuing a trend of accelerating growth. Moreover, Palantir is not a company that pursues growth at all costs without regard for profits; it reported a net income margin of 49%, a clear sign of its healthy profitability. However, predicting its exact growth is not as straightforward. Analysts often underproject its revenue, and while the consensus for next year is 51% growth, it could be higher.

Valuation: Why Nvidia is the Favorite

Drury compares the valuation of both companies. For him, the best way is to compare their stock prices against analysts' earnings estimates for the upcoming year. Although Palantir is at an earlier business stage and its subscription model could offer more reliable, steady long-term revenues, Nvidia's current valuation appears more attractive.

The analyst projects that by 2027, Nvidia could trade at 25 times its earnings and Palantir at 40 times. Currently, Nvidia trades at 12.7 times its expected earnings for next year. This suggests its stock could double, reaching $400 per share if it trades at 25 times its earnings.

For Palantir, its 1-year forward P/E (price-to-earnings) ratio is 75, which is quite high. Even if we assume its actual earnings next year are 50% higher than analysts' forecasts (adjusting for the history of underestimation), its adjusted P/E would still be 50. This is still above the P/E of 40 that Drury projects. Therefore, the analyst would not be surprised if Palantir's stock remains around $180 or even declines to about $150 to become more reasonably valued.

In fact, The Motley Fool Stock Advisor analyst team, which has had very successful recommendations with companies like Netflix and Nvidia itself in the past, did not include Palantir among its top 10 stocks to buy now.

Why it matters

For investors interested in artificial intelligence, this analysis highlights the importance of looking beyond current growth and considering how companies will be valued in the future. As the AI sector continues its rapid expansion, the underlying infrastructure, like that provided by Nvidia, may offer a clearer and more predictable path to increasing stock value in the mid-term, presenting a different risk-reward profile than AI software companies.