Nvidia and Palantir are expected to more than double by 2030.
Since the launch of OpenAI's famous chatbot ChatGPT, artificial intelligence (AI) seems to have taken the world by storm. AI technologies are being increasingly adopted across a host of industries including automotive, healthcare, finance, and retail to improve operational efficiencies, productivity, decision-making, and overall customer experience. According to a report by Fortune Business Insights, the global AI market is expected to balloon from $621.2 billion in 2024 to nearly $2.74 trillion in 2032.
AI is not a passing trend. With this transformative technology impacting numerous aspects of our daily lives, it has also emerged as a major investment theme. Many AI-powered stocks have already seen dramatic gains in the past couple of years.
However, investors now need to pick stocks that can continue to grow in the coming years, based on their superior technologies and strong fundamentals. Here's why Nvidia (NVDA -0.03%) and Palantir Technologies (PLTR 1.95%) fit the bill.
Nvidia
Nvidia has emerged as a major enabler and beneficiary of the generative AI revolution. Major cloud infrastructure providers, consumer internet companies, enterprises, and governments worldwide are using the company's accelerated computing solutions to power the AI infrastructure required for training and inferencing large language models. The economics of using Nvidia's chips have proven to be quite appealing. According to a company presentation at the Bank of America Securities 2024 Global Technology Conference, for every $1 invested in Nvidia's GPUs for training large language models, cloud service providers will earn back $5 over four years. The return on investment is even better for AI inferencing, where $1 invested in GPUs should yield $7 over four years.
Not surprisingly, the company now expects demand for its cutting-edge H200 chips and Blackwell systems to outpace supply well into fiscal 2025 (which began Jan. 29), despite ongoing investments in capacity expansions.
Nvidia's AI-optimized GPUs and CUDA (Compute Unified Device Architecture) software ecosystem have already played critical roles in AI breakthroughs such as transformer models, unsupervised learning, and the large language models of customers such as Tesla, Meta Platforms, Microsoft, and even some AI start-ups. The company has positioned itself as a "full-stack AI platform" by providing end-to-end AI infrastructure (chips, software, high-speed networking components, servers) to clients to enable them to build and deploy "AI factories" (next-generation data centers for AI production) at scale. Furthermore, the company is focused on expanding its addressable markets beyond data centers into areas such as fully self-driving vehicles and robotics.
While no one can reliably predict the future, we can make reasonable forecasts about Nvidia's growth trajectory. Analysts' consensus estimate is that its revenues will quadruple from $60.9 billion in its fiscal 2024 to $248 billion in its fiscal 2030. The company is trading at an elevated price-to-sales multiple of about 40. Assuming that multiple reverts to its three-year average of about 28.6, we can expect the company's market capitalization to be approximately $7 trillion in 2030. That would be more than double Nvidia's current market cap of $3.15 trillion.
Palantir Technologies
Data mining and AI specialist Palantir's stock price has risen at an impressive pace in the past year, propelled mainly by the robust adoption of its large language model-powered Artificial Intelligence Platform (AIP) by its commercial clients. AIP is proving to be a game-changer and is playing a major role in enabling clients to mine unstructured data from varied sources such as Slack messages, PDFs, text messages, email, audio, and images and analyze it to come up with structured suggestions for actions. The company's "boot camp" based go-to-market strategy and its "Build with AIP" initiative (which includes reference materials and tutorials to help clients build AI solutions) are driving the adoption of AIP.
Since the company's founding, government agencies have been Palantir's core clientele. Recently, though, its commercial business has been growing rapidly. In the first quarter, its U.S. commercial revenues soared 68% year over year while government revenues grew by only 8%. However, while it tends to be lumpy, government business is highly sticky and forms a stable foundation for Palantir. The company also secured a $178.4 million contract from the U.S. Army to develop and deliver a deep-sensing system under the Tactical Intelligence Targeting Access Node (TITAN) program. This agreement has established Palantir as the first "software prime" to have a direct contract with the U.S. Army for a hardware project. This could lead to even more opportunities for Palantir in the defense sector.
Palantir is already profitable on a GAAP (generally accepted accounting principles) basis and is free cash flow positive. The company ended the first quarter with $3.9 billion cash on its books -- sufficient to fund many of its ongoing growth initiatives.
The consensus forecast from analysts is that Palantir's revenues will almost quadruple from $2.22 billion in 2023 to $7.96 billion in 2030. The stock currently trades at a price-to-sales multiple of about 27. Assuming that the multiple over time reverts to its three-year average of 19.3, we can expect that in 2030 its market capitalization will be around $153.6 billion -- more than double its current market capitalization of $61.6 billion.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms, Microsoft, Nvidia, Palantir Technologies, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
