Why Wall Street Thinks Palantir Stock Will Plunge 34% in 2025 but That This AI Stock Will Soar 55%

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Keith Speights, The Motley Fool

Fri, Jan 10, 2025, 5:30 AM 5 min read

A bigger winner than Palantir

Few stocks outperformed Palantir in 2024, but MicroStrategy (NASDAQ: MSTR) did. Shares of the AI enterprise analytics software company zoomed almost 360% higher last year. And while Palantir is off to a rocky start in 2025, MicroStrategy's momentum continues.

Financial infrastructure and data provider LSEG surveyed nine analysts in January who cover MicroStrategy. Three of them rated the stock as a "strong buy." The other six analysts recommended MicroStrategy as a "buy."

As mentioned earlier, the consensus Wall Street 12-month price target reflects an upside potential of roughly 54%. The most optimistic analyst thinks MicroStrategy's share price could jump another 90%.

The outlook for Palantir is a much different story. The average analysts' price target for the stock is indeed 34% below the current share price. Of the 22 analysts surveyed in January by LSEG, only four rated Palantir as a "buy" or a "strong buy." Ten analysts recommended holding the stock. Another six analysts rated it as an "underperform" with two recommending selling.

Behind Wall Street's different takes on Palantir and MicroStrategy

Why is Wall Street so bearish about Palantir and bullish about MicroStrategy? It's not because of either company's recent growth.

Palantir's revenue soared 30% year over year in the third quarter of 2024. The company's GAAP earnings per share (EPS) doubled, while its adjusted EPS jumped 43% higher. On the other hand, MicroStrategy's revenue declined 10.3% year over year in Q3. Its bottom line also deteriorated significantly with a much wider net loss than in the prior-year period.

The different takes on Wall Street don't appear to be related to the two AI software companies' growth prospects in 2025, either. Analysts project Palantir's revenue will increase by around 25% this year. However, the consensus is that MicroStrategy will grow its revenue by less than 3%.

Is the gap in enthusiasm among analysts due to valuation? Sure, Palantir's premium price is undoubtedly a big factor behind Wall Street's bearish view of the stock. Its shares trade at nearly 145 times forward earnings and 63.6 times trailing 12-month sales. However, MicroStrategy's price-to-sales ratio stands at 141.6. That makes Palantir almost look cheap by comparison.

Instead of growth or valuation, analysts think so highly of MicroStrategy primarily because of the company's focus on Bitcoin (CRYPTO: BTC). The company is the world's largest corporate holder of the cryptocurrency and has adopted Bitcoin as its primary treasury reserve asset.

President-elect Donald Trump has discussed creating a national Bitcoin reserve and relaxing regulations on cryptocurrencies to make the U.S. a "crypto capital." These efforts could make MicroStrategy's Bitcoin holdings much more valuable.

Is Wall Street right about these two AI stocks?

I don't know whether or not Palantir's share price will plunge 34% and MicroStrategy's share price will soar 55% in 2025. However, I think Wall Street is directionally correct about Palantir. Although I fully expect sales of the company's software will continue to grow significantly, that growth appears to be more than baked into its share price already.

It's a tougher call for MicroStrategy. The stock's future hinges primarily on the price of Bitcoin. While the incoming Trump administration seems likely to be very pro-Bitcoin and pro-crypto, the value of Bitcoin depends entirely on what people think it's worth. Maybe people will think it's worth a lot more over the next 12 months; maybe not.

MicroStrategy's share price could jump 55% this year. However, I'm more comfortable investing in companies whose growth depends more on their ability to grow earnings instead of hopeful expectations of increasing cryptocurrency valuations.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Palantir Technologies. The Motley Fool has a disclosure policy.

Why Wall Street Thinks Palantir Stock Will Plunge 34% in 2025 but That This AI Stock Will Soar 55% was originally published by The Motley Fool

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