Prediction: 2 AI Stocks Will Be Worth More Than Palantir by Year’s End in 2025

Wall Street expects Shopify’s earnings to grow at 44% annually during the next three years. That makes the current valuation of 107 times earnings seem tolerable. As a caveat, while I think the stock can return 23% before year’s end 2025, putting Shopify ahead of Palantir’s current market value, shares are not cheap. So, investors should start with a very small position.

Arm develops central processing unit (CPU) architectures and related products like solutions for software development and systems design. It licenses that intellectual property to companies that want to build their own chips. Those companies benefit by outsourcing some chip-related R&D costs, while retaining the ability to customize chip design. Rivals like Intel and AMD do not offer the same flexibility.

CPU architecture defines how the hardware interacts with software. Arm CPUs are known for their energy efficiency, which has made them the industry standard in battery-powered mobile devices. For instance, Arm has more than 99% market share in smartphones. But the company has made strides in improving performance with its latest architectures, which has led to share gains in the data center.

Indeed, Nvidia‘s Grace Blackwell chips pair GPUs with Arm CPUs to speed up data center workloads like artificial intelligence. And the three major public clouds — Amazon Web Services, Microsoft Azure, and Alphabet‘s Google Cloud — have deployed Arm CPUs in their data centers. CFO Jason Child said sales growth from cloud computing customers hit a record high in the June quarter.

More recently, Arm reported September-quarter results that beat guidance, but the numbers themselves weren’t that impressive. Total sales increased 5% to $844 million because of strong growth in per-chip royalty revenue, offset by lower licensing revenue that management attributed to normal fluctuations in timing. Meanwhile, non-GAAP earnings declined 17% to $0.30 per diluted share.

However, management expects growth to pick up in the coming quarters, such that full-year revenue and adjusted earnings increase 22% in fiscal 2025, which ends in March. Beyond that, Wall Street anticipates earnings growth of 33% annually through fiscal 2027. In that context, the current valuation of 100 times adjusted earnings is still expensive, but investors will have to pay a premium to own shares right now because of excitement about the AI boom.

Importantly, while I think Arm shares can return 28% in the next year, such that it passes Palantir’s current market value, investors uncomfortable with volatility should avoid the stock. And even those comfortable with volatility should start with a very small position.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon, Nvidia, Palantir Technologies, and Shopify. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Intel, Microsoft, Nvidia, Palantir Technologies, and Shopify. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft, short February 2025 $27 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Prediction: 2 AI Stocks Will Be Worth More Than Palantir by Year’s End in 2025 was originally published by The Motley Fool