Most Wall Street analysts think Amazon (AMZN +2.02%) and Palantir Technologies (PLTR +0.12%) shares are undervalued. Amazon's median target price of $285 per share implies 37% upside from its current share price of $208. And Palantir's median target price of $200 per share implies 28% upside from its current share price of $156.
However, Brent Thill at Jefferies recommends buying Amazon and selling Palantir.
- His Amazon target of $300 per share implies 44% upside.
- His Palantir target of $70 per share implies 55% downside.
Here's what investors should know about these artificial intelligence stocks.
Image source: The Motley Fool.
Amazon: The stock Brent Thill recommends buying
Amazon stands to benefit greatly from artificial intelligence (AI). It has developed hundreds of generative AI tools that make its retail operations more efficient, including applications that optimize demand forecasting, fulfillment center workflows, and last-mile delivery. The company is also developing models that will let human workers engage robots in natural language.
"By combining our strengths in robotics and AI, we're developing systems that go beyond traditional automation to ease our everyday problem-solving, decision-making, and the myriad of tasks we tackle each day," says Joseph Quinlivan, vice president of fulfillment technology and robotics. Morgan Stanley analysts argue Amazon is one of the companies best positioned to benefit from the convergence of AI and robotics.
Meanwhile, Amazon Web Services (AWS) is the largest public cloud by infrastructure and platform services spending. Here, the company is monetizing AI at every layer of the technology stack: custom chips at the infrastructure layer, application development tools at the platform layer, and AI agents at the application layer. AWS reported 24% revenue growth in the fourth quarter, its fastest growth in four years.
Wall Street expects Amazon's earnings to increase at 15% annually through 2027. I think that leaves room for upside depending on how much the company's investments in AI and robotics boost margins, but the current valuation of 29 times earnings is reasonable even if the consensus estimate is accurate.
Key Data Points
Palantir Technologies: The stock Brent Thill recommends selling
Palantir designs data integration, analytics, and AI software for customers in the public and private sectors. Rather than focusing on visualization and reporting, its platforms revolve around a decision-making framework called an ontology. Management says its differentiated software means Palantir is uniquely positioned to help businesses integrate AI into operations .
Several independent research organizations have lauded Palantir. Forrester Research has ranked the company as a leader in artificial intelligence and machine learning platforms, and AI decisioning platforms. And International Data Corp. has recognized its leadership in decision intelligence platforms and AI-enabled source-to-pay tools.
The Pentagon recently designated Palantir's Maven Smart System as an official program of record. Maven, which leans on AI to identify potential battlefield strike targets, is already the official AI operating system for the U.S. military, but designation as a program of record will streamline adoption across different branches of the military, according to the Deputy Secretary of Defense Steve Feinberg.
Morgan Stanley analyst Sanjit Singh recently said Palantir was delivering the best growth and profitability metrics across all public software companies. Indeed, Palantir's revenue growth has now accelerated in 10 straight quarters, and the company is well positioned to maintain that momentum. Grand View Research estimates AI platform sales will increase at 38% annually through 2033.
However, whether Palantir is a smart investment is a different question entirely. Wall Street estimates adjusted earnings will grow at 57% annually through 2027. While impressive, that still makes the current valuation of 208 adjusted times earnings look absurdly expensive. I don't know if Palantir will lose half its value (as Brent Thill's target price implies), but the stock is certainly vulnerable to sharp corrections.
