Large asset managers must disclose their equity holdings quarterly through Forms 13F, a practice that allows investors to glean insights into the investment behaviors of billionaires. Recently, notable hedge fund managers have been actively buying shares in two artificial intelligence (AI) stocks: Palantir Technologies (PLTR) and Upstart (UPST). These moves have sparked attention not only for the investors involved but also for the potential implications on stock valuations.
For instance, Chris Rokos of Rokos Capital Management has initiated a new position by purchasing 55,809 shares of Palantir. Meanwhile, Philippe Laffont from Coatue Management has ramped up his stake in Upstart by purchasing an impressive 521,887 shares, marking a 150% increase. Notably, Ken Griffin of Citadel Advisors bought over 902,000 shares of Palantir while increasing his Upstart holdings by 618%. Paul Tudor Jones of Tudor Investment also took significant positions in both companies, further validating the bullish sentiment surrounding these stocks.
Wall Street analysts have chimed in, forecasting substantial upside for shareholders. For example, Dan Ives at Wedbush Securities projects that Palantir could achieve a staggering valuation of $1 trillion within the next three years, which translates to an upside potential of 240% based on its current market value of around $294 billion. Similarly, Dan Dolev at Mizuho Securities has set a target price of $85 per share for Upstart, suggesting an 85% upside from its current trading price of $46.
### Palantir Technologies: 240% Implied Upside
Palantir Technologies began its journey by developing custom data analytics solutions primarily for the U.S. intelligence community. Over the years, its focus has expanded to provide modular software platforms for various sectors, including commercial and government clients. The company’s core offerings, Gotham and Foundry, enable businesses to integrate complex datasets and derive insightful analytics through machine learning models.
A significant highlight for Palantir in 2023 has been the introduction of its Artificial Intelligence Platform (AIP), which supports large language models and natural language processing. This new offering allows organizations to enhance their data analytics workflows with generative AI capabilities. In fact, Forrester Research has recognized Palantir as a leading technology provider in the AI and machine learning space.
In the first quarter, Palantir demonstrated impressive performance metrics, increasing its customer count by 39% to total 769. Additionally, the average spend per existing customer rose by 24%. As a result, the company’s revenue surged 39% to reach $884 million, while non-GAAP earnings jumped 62% to $0.13 per diluted share, with management attributing this strong performance to heightened demand for its AI platform.
Despite the enthusiasm, Wall Street analysts anticipate an adjusted earnings growth rate of 31% annually through 2026. Such projections evoke mixed feelings about the stock’s current valuation of 270 times earnings, which some may view as exorbitant. Investors must navigate the dilemma of potential extraordinary returns against the backdrop of a possible market correction.
For prudent investors willing to withstand volatility, it may be wise to consider taking a small position in Palantir now. Should the stock price experience a downturn in the coming months, this could present an opportunity to acquire more shares at attractive valuations.
### Upstart: 85% Implied Upside
Upstart has distinguished itself with its innovative lending platform, which utilizes artificial intelligence to enhance the quantification of credit risk, surpassing traditional credit scoring methods. The company’s business model benefits from a network effect; every data point from borrowers—whether they make or miss payments—serves to refine and strengthen Upstart’s machine-learning capabilities.
The company’s first-quarter financial results were robust, exceeding both revenue and earnings expectations. Loan originations more than doubled, leading to a 67% revenue increase to $2.1 billion. Moreover, Upstart reported a non-GAAP net income of $0.30 per diluted share, a striking recovery from a loss of $0.31 per share during the same period last year.
However, despite the strong performance, the stock price fell sharply following the earnings announcement. This decline appears tied to investor concerns about the broader lending environment, particularly given economic uncertainties exacerbated by tariffs implemented during the previous administration. A potentially slowing economy may lead banks to exercise caution in extending credit, creating headwinds for Upstart.
Nonetheless, this challenging landscape could present a buying opportunity for patient investors. Analysts anticipate adjusted earnings growth of 195% annually through 2026, making the current valuation of 140 times earnings relatively appealing. Even if the growth consensus proves overly optimistic, Upstart’s ability to enable lenders to approve more borrowers at lower rates should drive long-term demand for its services.
Importantly, Upstart-powered loans issued in the past eight quarters have outperformed the two-year Treasury yield by an impressive average of 8 percentage points. This attractive return profile is likely to draw more lenders to the platform and enable the company to tap into an addressable market estimated at $3 trillion.
In summary, while the near-term outlook for these two artificial intelligence stocks may be influenced by external economic factors, the strong fundamentals and growth prospects position both Palantir and Upstart as intriguing plays for forward-thinking investors. While returns may vary in the short run, the long-term potential makes these companies worthy of consideration in an increasingly AI-driven landscape.
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