Both the S&P 500 and the NASDAQ indexes have been rising steadily this year, posting gains of approximately 10% in these first three months of 2024. The gains come on the back of last year’s bull market, which was led by the tech sector.
While this year’s gains are broader-based, tech continues to show strength. The emergence of generative AI technology at the end of 2022 is still making its weight felt. The new tech is finding increased acceptance and use across a wide range of companies and sectors, in everything from data analysis to retail. AI is a true game-changer – a once-in-a-generation technological shift that is changing the digital world just as the emergence of digital tech in the 90s created the information economy.
But the picture isn’t all rainbows and roses. Several economic headwinds remain in play, including persistent inflation, high interest rates, and excessive government spending and regulation. Monness’ Brian White, a 5-star analyst rated in the top 1% of the Street’s stock pros, reminds investors that “the darkest days of this economic downturn are ahead of us,” putting a note of caution into what could otherwise be an upbeat picture.
Against this backdrop, White is looking closely at two big tech players, Palantir (NYSE:PLTR) and Amazon (NASDAQ:AMZN). Both are riding the AI wave, but White sees them heading in different directions as they adapt to the changing economic landscape. Let’s take a closer look at them, and see which one White chooses as the superior tech stock to buy, and why.
Palantir
The first stock we’ll look at is Palantir, a tech firm founded by the venture capitalist Peter Thiel. Back in 2003, Thiel, the mastermind behind PayPal, established Palantir as a groundbreaking data analysis firm. The name ‘Palantir’ derives its inspiration from the enchanted palantiri of Tolkien’s lore, symbolizing ‘that which looks far away.’ Leveraging advanced data analytics and AI-driven software, Palantir delivers real-time snapshots of current events to its clientele.
At the practical level, Palantir’s work uses AI as an augmentation to human intelligence, working to make the best of both. The company offers subscribers a variety of AI platforms designed around natural language interaction, with users asking the system complex questions and getting detailed answers in response. The system is designed to avoid the need for computing coding scripts, programming languages, or statistical models to access data analysis.
Palantir’s services have found acceptance across a wide range of sectors and customers. The company’s most recent business win was announced earlier this month when the US Army accepted the company’s bid to develop and deliver the TITAN program, Tactical Intelligence Targeting Access Node. The contract is valued at more than $178 million and covers 10 prototypes of TITAN plus integration of new technologies to the system and the transition to fielding.
That was a major win for Palantir, and came just a few weeks after the company released solid financial results from 4Q23. The quarterly top line was reported as $608.35 million, up more than 19% year-over-year and $5.55 million better than had been expected. The bottom line, of 8 cents per share in non-GAAP measures, was in-line with the forecast. Palantir’s GAAP EPS was 4 cents per share, and marked the fifth quarter in a row of GAAP profitability.
These strong share gains (PLTR is up 180% over the past 12 months), on the back of last year’s success, form the basis of Brian White’s view of the stock.
The top analyst is downbeat on Palantir, viewing the shares as overvalued, noting: “On the back of this unprecedented generative AI hype cycle, Palantir surged in 2023 and the stock’s upward trajectory has continued in 2024, leaving the company with what we view as an egregiously rich valuation. As such, we are downgrading Palantir to a Sell rating… In our view, Palantir is well positioned to benefit from the long-term AI trend and capitalize on volatile geopolitics; however, revenue from government-related contracts has proven lumpy, execution spotty, valuation excessive, and we believe the darkest days of this economic downturn are ahead of us.”
White’s Sell rating on PLTR comes with a $20 price target, implying a 13% downside for the coming year. (To watch White’s track record, click here)
White is hardly the only bear on this tech stock. Palantir’s 13 recent analyst reviews include 2 Buys, 6 Holds, and 5 Sells – for a Hold consensus rating. The shares are currently trading for $23.01 and their $19.64 average price target price suggests the stock will decline ~15% in the next 12 months. (See Palantir stock forecast)
Amazon
Now we’ll switch our view to Amazon, the world’s largest online retailer. This company is a giant of the tech industry, and one of the Magnificent 7, the mega-cap tech stocks that powered the market gains in 2023. Amazon boasts a market cap of $1.87 trillion, making it the world’s fifth-largest publicly traded firm and one of just 6 trillion-dollar-plus companies on Wall Street. It’s a scale that few retailers can even come close to matching.
On the retail side of its business, Amazon rakes in approximately $1.4 billion in revenue every day. The company’s e-commerce activity forms the core of its business, and total net sales reached $574.8 billion last year. The lucrative online revenue segment is supported by a physical network of warehouses and logistical centers, Amazon’s famous ‘fulfillment centers,’ some of them exceeding 1 million square feet in working floorspace. These facilities make it possible for Amazon to fill orders in record time and make rapid deliveries nearly anywhere in the world.
In addition to its e-commerce, Amazon also offers customers a wide array of other services. These lean heavily toward online subscription services and include the increasingly popular AWS cloud computing service, along with home automation, TV streaming, Kindle ebooks, online gaming for kids and grown-ups, and even grocery orders. The common denominator here is using the online world to meet real needs in the physical world.
In an important development for tech-minded investors, Amazon announced on March 27 that it had increased its investment in the generative AI startup firm Anthropic. The new investment in the AI developer is substantial, at $2.75 billion, and brings Amazon’s total investment in Anthropic to $4 billion. Anthropic is developing Claude, a generative AI chatbot designed to compete with the famous ChatGPT.
Turning to recent financials, we find that Amazon’s revenue in 4Q23, the last quarter reported, came to an impressive $170 billion. This figure represented a 14% year-over-year jump and was $3.74 billion higher than had been anticipated. Amazon’s Q4 bottom line, of $1 per share, was derived from the net income of $10.6 billion. Amazon’s AWS subscription cloud service grew by 13% year-over-year in the quarter and brought in $24.2 billion of the total revenue.
Monness’s White sees both AI and AWS working to Amazon’s advantage in the near-term, and writes of the stock, “Looking forward, we believe the market will increasingly grow suspicious of the generative AI hype propagated across the tech landscape, especially in the enterprise software industry, driving greater scrutiny around their investments. At the same, we believe the leading cloud service providers are well positioned to benefit from the early-stage ramp of generative AI projects, including AWS. We believe Amazon will continue to capitalize on the cloud, expand its digital ad business, innovate with AI, participate in healthcare opportunities, realize efficiencies from a regional fulfillment network, and leverage a leaner cost structure; however, regulatory headwinds persist and we believe the darkest days of this economic downturn are ahead of us.”
These comments support White’s Buy rating on AMZN, while his $215 price target points toward a one-year potential upside of 19%.
In the overall view from the Street, Amazon looks like a solid buy – as evidenced by the unanimously positive Strong Buy consensus rating based on no fewer than 41 recent analyst reviews. The stock is selling for $180.38 right now, and its $209.59 average target price suggests it will gain another 16% by this time next year. (See Amazon stock forecast)
With the facts in and the decision handed down, it’s clear that Brian White chooses Amazon as the superior tech stock to buy right now.
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
