Anticipation: Two Artificial Intelligence Shares to Surpass Palantir's Value Before the Year's Conclusion in 2025
Shares of Palantir Technologies (PLTR 0.17%) have more than quadrupled in value this year due to persistent demand for its new artificial intelligence platform. However, the average price prediction for the stock indicates a potential 48% drop. In contrast, Shopify (SHOP 0.28%) and Arm Holdings (ARM -4.00%) appear to be more attractive investment opportunities.
Currently valued at $165 billion, some analysts believe Shopify and Arm will surpass this figure before 2025 ends.
- Loop Capital analyst Anthony Chukumba has revised his price target for Shopify to $140 per share, representing a 23% increase from its current price of $114. This would give the company a market value of $180 billion.
- Morgan Stanley analyst Lee Simpson has set a target price of $175 per share for Arm, a 28% increase from its current price of $137. This would result in a market value of $183 billion for the company.
Here's what investors should know about Shopify and Arm.
1. Shopify
Shopify provides merchants with a unified platform for managing physical and digital sales channels. Alongside merchandising solutions, Shopify offers a range of financial services and tools, including business-to-business commerce (B2B) solutions.
While investors may not consider Shopify an 'artificial intelligence' (AI) company, automation could significantly improve its services and boost efficiency. Shopify's AI tools, such as Shopify Magic, assist merchants in managing their businesses, generate marketing content, write product descriptions, and provide customer service.
Internally, Shopify is using AI to enhance the performance of its engineering, sales, and finance teams, which should bolster profits over time. The potential for AI-driven profit margin expansion is one of the reasons Anthony Chukumba at Loop Capital increased his price target.
Shopify reported impressive third-quarter financial results, exceeding analyst estimates. Revenue skyrocketed 26% to $2.1 billion, driven by growth in subscription software and merchant services. Earnings increased 46% to $0.35 per diluted share. The company expects similar growth in the fourth quarter.
Additionally, Shopify highlighted strong increases in sales volume in three key growth areas: offline sales (27%), wholesale commerce (145%), and international sales (30%). Shopify also reported a 36% increase in international merchants in the third quarter.
Wall Street anticipates Shopify's earnings to grow at an annual rate of 44% over the next three years. Despite this, the stock's current valuation of 107 times earnings may seem excessive. As a precaution, investors should start with a modest position.
2. Arm Holdings
Arm designs central processing unit (CPU) architectures and related products, such as solutions for software development and systems design. By licensing its intellectual property, companies can save on research and development (R&D) costs, while still able to customize their chip designs.
Arm's CPUs are renowned for their energy efficiency, making them a popular choice in battery-powered mobile devices. Intel and AMD, its competitors, lack the same degree of customization flexibility.
Arm's CPUs have an edge in energy efficiency, securing a 99% market share in the smartphone industry. However, it has also improved performance with its latest architectures, gaining ground in the data center.
Nvidia's Grace Blackwell chips use Arm CPUs in conjunction with GPUs to enhance data center workloads such as AI. Major cloud providers such as AWS, Azure, and Google Cloud have also adopted Arm CPUs in their data centers. Arm reported growth from cloud computing customers in the June quarter, with sales from this sector reaching a record high.
Recent results for the September quarter show a 5% increase in total sales, thanks to increased per-chip royalty income. However, licensing revenue dropped due to temporary fluctuations in the timing of agreements. As a result, non-GAAP earnings decreased 17% to $0.30 per diluted share. Arm anticipates growth to pick up in the following quarters, with full-year revenue and non-GAAP earnings increasing 22% and 21%, respectively, in fiscal 2025.
Despite anticipating a return of 28% in the following year, Investors with a low tolerance for volatility should avoid purchasing Arm shares, even those who are comfortable with market fluctuations should invest cautiously, starting with a small position.
Investors may find Shopify and Arm to be promising investment opportunities in the realm of finance, given their growth potential and market performance. According to Loop Capital and Morgan Stanley analysts, Shopify's market value could reach $180 billion and $183 billion respectively, while Arm's stock price is projected to increase by 28%. This indicates a significant potential for money growth through investing in these companies. Furthermore, Shopify's use of AI tools such as Shopify Magic for improving their services and internal operations could lead to increased profits and efficiency, making it an attractive investment option for those interested in finance and technology.
