Meta Platforms (META) and Palantir Technologies (PLTR) have emerged as standout performers in the artificial intelligence (AI) stock market since the middle of September. Meta has climbed to record highs, while Palantir, despite its recent surge, is still working to regain its peak from January 2021. This article examines the relative performance of these two tech giants and delves into their potential for future growth.
Meta has seen a remarkable year-to-date gain exceeding 68%, while Palantir has soared even higher, posting a 133% increase. This makes Palantir the fourth best-performing company in the S&P 500 this year, while Meta holds the 11th spot. Both stocks have significantly outperformed the broader market, as measured by the SPDR S&P 500 ETF Trust (SPY), which tracks the S&P 500 Index.
However, the recent rallies have come with a price tag. Valuations for both companies have become significantly elevated. Palantir currently boasts a hefty forward price-to-earnings ratio of 95.2, while Meta trades at a more modest 24.75. Meta’s P/E ratio is relatively in line with the communications services sector’s average of 21.3.
Palantir’s recent upward trajectory began with a strong opening on September 9th, the first trading day after the S&P Dow Jones Indices announced its inclusion in the S&P 500 Index, effective from September 23rd. Wedbush analyst Daniel Ives described this as a ‘validation moment’ for Palantir, highlighting its enhanced profitability profile. While there was a brief ‘buy the rumor, sell the news’ effect after the inclusion, Palantir has continued to climb steadily since the beginning of October.
Meta, on the other hand, found its footing after the broader market slump that began in early August due to the unwinding of the yen carry trade. The stock rose steadily until mid-August, experiencing a temporary pullback until mid-September. Meta’s two-day Connect conference, held on September 25th and 26th, saw the company unveil a range of exciting new products and services, including AI-powered chatbots, an updated Llama large-language model, enhanced Ray-Ban smart glasses, the next-generation Meta Quest 4 VR headset, and the Orion augmented reality glasses. The stock has been on an upward trend ever since.
Looking ahead, analysts’ average price targets, compiled by TipRanks, indicate modest upside potential for Meta but a potential downside for Palantir. Meta is currently trading at $595.94 and has a 1-year average price target of $608.20, representing a 2.06% upside. Palantir, currently at $40.01, has a 1-year average price target of $27.67, suggesting a potential 30.84% downside.
Meta’s next major catalyst will likely be its third-quarter earnings report, scheduled for October 30th. Analysts anticipate over 30% earnings per share growth and nearly 20% revenue growth. Meta’s success largely depends on advertising spending, which is closely tied to macroeconomic conditions. With the Federal Reserve hinting at potential rate cuts in the coming months, credit conditions could ease, potentially benefiting Meta.
Palantir, a favorite among retail investors, could continue its upward momentum driven by strong deal flow, positive third-quarter earnings, and optimistic fourth-quarter guidance. Furthermore, the market is entering a seasonally strong period, which typically sees a confluence of factors supporting market growth. Despite the stretched valuations, further gains might be possible. However, investors may remain cautious about geopolitical and macroeconomic headwinds, with ongoing wars and the possibility of a hard economic landing still on the horizon.
