A once-in-a-decade opportunity: 2 AI stocks to buy before they rise 175% and 560%, according to certain Wall Street analysts

Historically, certain technologies have played a critical role in the growth of the stock market. 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 next defining technology of the next decade, and these Wall Street analysts are extremely optimistic about Nvidia (NVDA -2.13%) and Palantir Technologies (PLTR -0.70%).

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

Investors should never rely too much on forecasts. A recent study found that only half of price targets correctly predict which way stocks will move, meaning that far fewer predict the actual price with any degree of accuracy. However, Nvidia and Palantir deserve further consideration.

Nvidia: 560% involved up

Nvidia dominates the market for data center graphics processing units (GPUs), 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 rival products, but also because Nvidia has a more robust software support ecosystem that simplifies application development. That ecosystem, called CUDA, makes Nvidia GPUs the go-to option for developers. As proof, the company has between 70% and 95% market share of AI chips, according to analysts.

Boston Consulting Group’s Phil Panaro believes that Nvidia’s next-generation GPU, called Blackwell, will further strengthen the company’s dominance in AI as the new chips begin to hit the market in the fourth quarter. Panaro noted that Nvidia stock traded sideways in the months leading up to the release of its previous generation of GPUs, called Hopper.

“Once they launched it, the stock went up hundreds of percent. So, I see the same thing happening with Blackwell,” he said in a recent interview with the Schwab Network. In addition, Panaro also said he expects Nvidia to generate $600 billion in revenue in fiscal 2031 (ending January 2031). This implies growth of 33% annually, which roughly matches Grand View Research’s prediction that AI spending will grow to 36% annually by 2030.

Nvidia undoubtedly has a strong position in a fast-growing market, and has strengthened its dominance by branching out into adjacent verticals such as networking equipment and cloud infrastructure services designed for AI workloads. Even so, I see a rating problem with Panaro’s forecast.

Maybe Nvidia will generate $600 billion in revenue in fiscal 2031. But a share price of $800 implies a market cap of nearly $20 trillion. So Panaro’s earnings estimate implies a price-to-sales ratio of 33. Nvidia currently trades at 31 times sales, and that’s actually a premium to its three-year average of 26 times sales. I doubt Nvidia will have a higher valuation six years from now.

That said, I think Nvidia stock can outperform S&P 500 by the end of the decade, perhaps substantially. Patient investors should consider buying a small position in the stock today.

Palantir Technologies: 175% with an implicit advantage

Palantir sells analytics software to commercial organizations and government agencies. Its products include the data management platforms Foundry and Gotham and the artificial intelligence platform AIP. These tools help customers integrate data, develop and manage machine learning models, and incorporate those assets into analytical applications that improve decision-making.

In August, Forest Research recognized Palantir as a leader among machine learning and artificial intelligence platform providers. The report analyzed companies based on the strength of their current offering and growth strategy. Palantir has surpassed every other vendor in terms of current offering, but Alphabet and C3. have received higher scores for product development strategy.

“Palantir is a true AI company that really looks at data, analyzes it and uses it to make real decisions,” Greentech Research analyst Hilary Kramer told Fox Business. She pushed it aside Goldman Sachsprice target of $16 per share, implying a 55% downside to the current share price of $36.40, saying that major investment banks have yet to appreciate the full potential of Palantir’s software.

I think those investment banks would wholeheartedly disagree based on the valuation. Like Nvidia, Palantir has a strong presence in a fast-growing market. International Data Corp. (IDC) expects AI platform spending to grow 51% annually through 2030. But Palantir trades at 217 times earnings, and the Wall Street consensus calls for 24% annual earnings growth over the next three years.

These numbers give an outrageous PEG ratio of 9. For context, PEG ratios of 1 or 2 are usually considered to be reasonable. Given the current valuation, Wall Street is quite bearish on Palantir. The average target price of $27 per share implies a 26% downside to the current share price. Personally, I would steer clear of this stock until the valuation drops. That doesn’t necessarily mean Palantir stock will crash anytime soon. I’m simply pointing out that stocks are very expensive, which means the risk-reward profile is heavily skewed towards risk.