The AI Revolution: Two Stocks Poised to Outshine Palantir
A New Era of Growth
Palantir Technologies, a leader in artificial intelligence (AI)-powered enterprise software, has been on a tear in 2024. However, with a market capitalization of over $187 billion, many analysts believe the stock has gotten ahead of itself. In fact, only three out of 22 Wall Street analysts covering the stock give it an overweight or buy rating.
Palo Alto Networks: A Cybersecurity Powerhouse
Meanwhile, Palo Alto Networks is capitalizing on two significant shifts in the market. As more enterprises move to cloud computing and adopt hybrid work arrangements, the demand for cybersecurity services is skyrocketing. Palo Alto offers comprehensive security solutions, including firewalls, cloud security, and endpoint security, making it an attractive option for businesses. With a considerable data advantage over its competitors, Palo Alto’s AI efforts are paying off handsomely.
A Virtuous Cycle of Growth
Palo Alto’s capabilities make it more attractive to new customers, creating a virtuous cycle of growth. The company’s switching costs are high, making it unlikely for existing customers to switch to competitors. Additionally, Palo Alto has been expanding its offerings through strategic acquisitions, leading to considerable success in cross-selling customers on new products. As the company shifts to more software-based solutions, its gross margin is expected to continue to rise.
A Fair Price for a Leader
Palo Alto’s shares currently trade at an enterprise-value-to-revenue ratio of 14.6, which is a fair price to pay. If the company can maintain this multiple through fiscal 2025, its stock is expected to climb around 14% based on analysts’ estimates. This would put its value at around $142 billion by the end of 2025, requiring Palantir’s stock to drop about 24% from its current price.
Micron Technology: A Critical Component of AI Chips
Micron Technology, a leading manufacturer of memory chips, is another AI stock poised for growth. The company’s data center revenue grew over 400% year over year in its first quarter, driven by its high-bandwidth memory (HBM) chips. Micron’s management is extremely optimistic about the potential for AI to transform its business, with the HBM market expected to grow from $16 billion in 2024 to $100 billion by 2030.
A Cyclicality Risk, But High Demand Ahead
While Micron’s consumer segment is experiencing a slowdown, its data center business is expected to offset this weakness. The company’s chips are in high demand, and analysts expect 39.6% revenue growth for the year. At an enterprise-value-to-revenue ratio of 3.7, shares look undervalued despite the cyclicality risk. If shares expand their multiple to 4 over the next year, Micron’s stock could climb about 50%, putting its market cap around $150 billion.
Two AI Stocks to Watch
Regardless of whether Micron or Palo Alto Networks end up being worth more than Palantir by the end of 2025, both look far more attractive than the highflier at today’s prices. With their strong growth prospects and fair valuations, these two AI stocks are worth considering for your portfolio.
Leave a Reply