Palantir Technologies was the best performing member of the S&P 500(SNPINDEX: ^GSPC) in 2024. Its share price rose 340% last year as growing demand for its artificial intelligence platform excited investors. Palantir has become a $181.9 billion business, but I think the semiconductor company Arms(NASDAQ: ARM) It may exceed that figure in 2025.
Here’s what that would mean for shareholders: Arm is currently worth $148 billion. Therefore, its share price would need to advance 23% to $174 per share for its market value to reach $182 billion. I see this as a likely outcome in 2025 due to the growing demand for energy-efficient AI infrastructure. And the following Wall Street analysts have set price targets that support my prediction.
Morgan Stanley analyst Lee Simpson: $175 per share.
evercore analyst Mark Lipaces: $176 per share.
bank of america analyst Vivek Arya: $180 per share
Loop Capital Ananda Baruah: $180 per share.
Here’s what investors should know about this semiconductor stock.
Arm is a semiconductor company that does not sell semiconductors. Instead, it designs central processing unit (CPU) architectures and licenses intellectual property (IP) to clients. Customers can then use the intellectual property to design custom chips optimized for their needs, while Arm earns revenue through licensing and unit royalties.
Arm also provides related technologies such as IP systems and software development tools. The first helps engineers bring together CPUs, GPUs, memory, and other hardware to design Arm-based systems. The latter simplifies application development on Arm-based chips in domains such as artificial intelligence (AI), robotics, and scientific computing.
Historically, Arm chips have been more power efficient than competing processors built on Arm’s x86 architecture. Intel and amd. Consequently, Arm chips are ubiquitous in all mobile devices, including a 99% market share in smartphones. But the company has made progress in improving performance, so that its share of the data center market has increased six percentage points over the past two years.
Importantly, all three of the largest public clouds have designed Arm-based chips for their data centers: Graviton processors from Amazon Web Services, Axiom CPU Alphabet‘s Google Cloud and Cobalt CPU microsoft Azure. Additionally, Arm CEO Rene Haas recently wrote: “Ten of the world’s largest hyperscalers are developing and deploying Arm-based chips in their data centers.”
A potentially important example is the NVIDIA Grace-Blackwell superchip, which combines Nvidia GPU with Arm CPU. CEO Jensen Huang believes the Blackwell platform will be the most successful product in the company’s history and perhaps the most successful product in the history of computing. That bodes well for Arm because the company collects royalties per chip.
Image source: Getty Images.
In short, Arm-based chips are the industry standard in smartphones and are gaining market share in other product categories, including data centers. That means Arm is increasingly better positioned to benefit as companies invest in artificial intelligence. AI systems require a huge amount of electricity, which means Arm’s energy-efficient chips could be an attractive source of cost savings.
Wall Street expects Arm’s adjusted earnings to grow 33% annually through fiscal 2027, which ends in March 2027. That consensus estimate makes the current valuation of 104 times adjusted earnings look expensive. But Arm has consistently surpassed consensus forecasts in recent quarters, so it’s possible Wall Street is underestimating its growth trajectory.
Importantly, if Arm’s earnings grow 33% in the next four reports (i.e. the next four times the company announces its financial results), its share price could rise 23% to $174, while that its price-earnings multiple decreased slightly. That would raise its market value to $182 billion, which would exceed Palantir’s current market value of $181.9 billion.
However, if Arm continues to beat Wall Street earnings estimates, the stock price could rise even higher. In fact, analysts at Morgan Stanley have outlined a bullish scenario in which the stock will hit $300 per share before the end of 2025. That implies a 112% increase from the current share price of $141.
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Alphabet executive Suzanne Frey is a member of The Motley Fool’s board of directors. Bank of America is an advertising partner of Motley Fool Money. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions at Amazon, Nvidia and Palantir Technologies. The Motley Fool positions and recommends Advanced Micro Devices, Alphabet, Amazon, Bank of America, Intel, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends the following options: long $395 January 2026 calls on Microsoft, short $27 February 2025 calls on Intel, and short $405 January 2026 calls on Microsoft. The Motley Fool has a disclosure policy.
Prediction: 1 AI Stock Will Be Worth More Than Palantir Technologies by Year-End in 2025 was originally published by The Motley Fool
