Buy 1 Artificial Intelligence (AI) Stock With More Upside Than Palantir, According to Wall Street Analysts

Palantir Technologies (NASDAQ: PLTR) plays an increasingly important role in the artificial intelligence value chain, and most Wall Street analysts consider the stock undervalued at $143 per share. The median target of $200 per share implies 40% upside from its current price.

However, Wall Street is generally more bullish on Axon Enterprise (NASDAQ: AXON), a lesser-known company that is integrating artificial intelligence into its public safety hardware and software. Axon's median target price of $700 per share implies 76% upside from its current share price of $397.

Here's what investors should know.

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Palantir Technologies: 40% upside implied by Wall Street's median target price

Palantir is emerging as the industry standard in enterprise artificial intelligence platforms. Its integration and analytics products are well suited to operationalizing AI because they organize data into a decision-making framework (rather than spreadsheets) called an ontology. And machine learning models embedded in the ontology surface increasingly useful insights as they capture more data.

Beyond integration and analytics tools, Palantir provides an adjacent artificial intelligence platform (AIP) that lets developers build large language models into businesses processes and applications. AIP makes it possible for users to engage data in natural language, but it also lets AI agents understand and take action on information to automate workflows.

Palantir's execution was impeccable in the fourth quarter. Revenue climbed 70% to $1.4 billion, the tenth straight acceleration, and non-GAAP net income increased 79% to $0.25 per diluted share. Morgan Stanley analyst Sanjit Singh wrote in a note to clients, "It is hard to find a better fundamental story in software than Palantir."

However, the stock trades at 190 times adjusted earnings, a very expensive valuation even for a company whose adjusted earnings are forecast to increase at 57% annually through 2027. The market is currently tolerant of Palantir's enormous price tag, and that is reflected in the median target price of $200 per share. But the stock could fall sharply if the company fails to meet Wall Street's lofty expectations.

Axon: 76% upside implied by Wall Street's median target

Axon develops public safety products for law enforcement, enterprises, and government agencies. Its hardware portfolio includes conducted energy weapons (Tasers), body-worn cameras, and in-car cameras. Its software portfolio includes products for digital evidence management, records management, dispatch, and real-time operations.

Axon is the market leader in Tasers, body-worn cameras, and digital evidence management software, and the company is supercharging its products with artificial intelligence capabilities intended to help law enforcement teams work more efficiently.

• Axon Vision analyzes video data (from the real-time operations software Fusus) and alerts users to critical situations, such vehicle collisions and security incidents.
• Vehicle Intelligence analyzes video feeds consolidated by Fusus (e.g., body-worn cameras and city surveillance cameras) to track vehicles based on make, color, and license plate.
• Draft One automates the report-writing process using audio from body-worn cameras and additional narration provided by officers, which reduces time spent on paperwork.
• Axon Assistant is an conversational chatbot integrated with body-worn cameras and digital evidence management software. It can query evidence, records, and agency policies.

Axon reported encouraging fourth-quarter financial results. Sales increased 39% to $797 million, driven by strong growth across hardware and software products, and non-GAAP net income soared 84% to $2.15 per diluted share. Additionally, contracted bookings (orders not yet recognized as sales) increased 43% to $14.4 billion, which hints at durable demand.

Wall Street estimates Axon's adjusted earnings will increase at 24% annually through 2027. That makes the current valuation of 55 times adjusted earnings look tolerable, especially because analysts have frequently underestimated the company. Axon beat the consensus earnings estimate by an average of 23% in the last six quarters. The current price is an attractive entry point for long-term investors.

Trevor Jennewine has positions in Axon Enterprise and Palantir Technologies. The Motley Fool has positions in and recommends Axon Enterprise and Palantir Technologies. The Motley Fool has a disclosure policy.