Palantir Technologies(NASDAQ:PLTR) has seen a considerable increase in its market value in 2024 thanks to a remarkable 313% rise in the company's stock price so far this year.
The company has a market capitalization of $162 billion as of this writing, up from about $35 billion at the start of the year. However, a closer look at Palantir's valuation indicates that it may have gotten ahead of itself. The software platform specialist has a price-to-sales ratio of 63, while its current earnings multiple stands at 345.
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Unsurprisingly, Wall Street does not expect the stock to rise significantly over the next year. The 20 analysts covering Palantir have a median 12-month price target of $38, which would represent a 46% decline from current levels. If this indeed happens, its valuation could drop significantly over the coming year.
Of course, the company might be able to justify its high valuation thanks to the growing demand for artificial intelligence (AI) software platforms, a market where it is the leading player. But if cracks appear in Palantir's growth story, particularly as fierce competition intensifies from smaller and smaller players in the enterprise AI software space, it There is a good chance that investors will start booking profits, which would cause the stock to fall.
This could pave the way for Arm holds(NASDAQ:ARM) And Applied materials(NASDAQ:AMAT) to surpass Palantir's valuation next year. Let's take a look at why these two companies could be worth more than Palantir in 2025.
With a market capitalization of just under $148 billion, Arm Holdings isn't far off Palantir's valuation. And Arm stock has delivered impressive returns of 87% in 2024 due to the important role the company plays in the global semiconductor market.
Arm licenses its architecture and intellectual property (IP) to semiconductor companies and consumer electronics manufacturers so that they can develop different types of chips such as central processing units (CPUs), graphics processing units (GPUs) and microprocessors, among others. The company's chip architecture is used in several industries, including smartphones, data centers, computers and automobile manufacturing.
Arm enjoys a healthy market share across many verticals. For example, in mobile applications, it has a market share of over 99%. Its share of the consumer electronic chip market stands at 30%. Better yet, it is gaining ground in rapidly growing niches such as cloud computing and networking equipment, where it now holds 15% and 28% market shares, respectively, compared to 9% and 23% a few years ago.
And its share of the automotive chip market increased from 43% to 47% in a few years. In total, Arm estimates that its architecture and intellectual property control 47% of the $214 billion value of the global chip market. The company hopes to benefit from the increasing complexity of chips deployed in its end markets thanks to the emergence of technologies such as AI.
And that’s why the demand for its architecture licenses has increased. It ended the second quarter of fiscal 2025 with 39 Arm Total Access licenses, up from 33 in the previous quarter. The number of Arm Flexible Access licensees increased to 269 from 241 in the previous quarter.
This increase in the number of licenses sold bodes well because chips developed using these licenses will generate royalty revenue. The company already derives about 50% of its royalty revenue from chip architectures launched more than 10 years ago.
Management expects its revenue for the current fiscal year to increase to $3.95 billion from $3.23 billion for fiscal 2024, an increase of 22%. Its earnings guidance of $1.55 per share would represent a 22% increase from fiscal 2024 levels of $1.27 per share.
The company's growth is expected to accelerate in the next fiscal year, with revenue expected to rise 25% to $4.93 billion and earnings to rise 32% to $2.05 per share. Analysts expect this stronger growth to lead to further upside potential for the stock. The 12-month median price target of $160 would represent a 14% jump from current levels.
As such, there's a good chance it will surpass Palantir's valuation next year, especially since Arm's profit growth is then expected to be stronger than Palantir's estimated net profit growth at 25%.
Applied Materials hasn't set the stock market on fire in 2024, gaining just 13% so far this year, but 2025 could be much better for the company. Global spending on semiconductor equipment is expected to grow at a much faster rate, 24% in 2025, following a 4% increase this year, according to industry association SEMI.
Applied Materials sells manufacturing equipment and provides services and other software for the semiconductor and display industries. The company's revenue in fiscal 2024 (which ended Oct. 27) rose just 2% to $27.1 billion. Its adjusted profit, however, jumped 7% to $8.65 per share.
Consensus estimates call for a 9% increase in revenue in the current fiscal year, to $29.6 billion, as well as a 10% increase in profit, to $9.54 per share. And there's a good chance the company will see stronger growth thanks to increasing demand for AI-related chipmaking equipment.
Management said during its November earnings conference call that growing demand for memory capacity in AI data centers had driven a 60% increase in sales of AI's DRAM (dynamic random access memory) equipment. company during the 2024 financial year.
This trend is likely to continue, as demand for high-bandwidth memory (HBM) deployed in AI data centers is expected to double next year. At the same time, Applied Materials will likely benefit from transitioning to more advanced chipmaking technology to handle AI workloads, which should significantly increase its addressable market.
All of this tells us why analysts are optimistic about the company's prospects for next year. The stock has a median 12-month price target of $225, which would represent a 23% upside. Given its current market cap of nearly $151 billion, it won't be surprising to see it surpass Palantir's valuation over the next year.
Applied Materials trades at just 19 times forward earnings. So, if the market decides to reward its stronger growth with a richer valuation, the stock could easily generate bigger gains than analysts estimate.
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Hard Chauhan has no position in any of the stocks mentioned. The Motley Fool features and recommends Palantir applied materials and technologies. The Mad Motley has a disclosure policy.
