AI Stocks Face Recent Setbacks Despite Strong Growth Metrics
The AI sector has encountered a temporary setback in recent weeks, as many companies within this space have witnessed a decline in their stock prices after significant gains. Notably, major players such as NVIDIA (NVDA), Vertiv (VRT), and Palantir (PLTR) have shown disappointing performances.
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Are AI stocks currently undervalued? Analyzing recent performance reports may provide insights into current market demand and future prospects.
NVIDIA’s Growth Remains Strong
NVIDIA continues to play a pivotal role in the AI narrative, thanks largely to its Data Center operations, which have experienced remarkable expansion as businesses seek greater computing power.
The latest Data Center results were spectacular, demonstrating strong overall demand. Data Center revenue reached a record $35.6 billion, marking a year-over-year increase of over 90% and a sequential growth of 16%. This figure surpassed our consensus estimate by $2.0 billion, contributing to a trend of significant earnings surprises.
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The valuation landscape appears favorable, characterized by a PEG ratio of 1.0X. This figure is well below both the five-year median of 2.5X and the five-year high of 5.5X. Additionally, earnings per share (EPS) projections remain optimistic, with NVIDIA holding a Zacks Rank of #2 (Buy).
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Palantir’s Customer Base Expands
Palantir also delivered strong results, exceeding market expectations with impressive growth metrics. Sales reached $828 million, up 36% from the previous year and 14% sequentially, driven by a remarkable 43% increase in customer count—highlighting surging demand.
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Furthermore, Palantir secured a record-high $803 million in U.S. commercial total contract value (TCV), representing a significant year-over-year rise of 130% and a sequential increase of 170%. The enthusiastically positive U.S. results featured a 64% and 45% increase in Commercial and Government revenues, respectively.
With a favorable EPS outlook and a Zacks Rank of #2 (Buy), Palantir anticipates earnings to grow by 31% in the current fiscal year, alongside a 32% increase in sales.
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Although Palantir’s current PEG ratio of 4.7X appears high, it has dropped significantly from its previous peak of 7.2X just last month.
Vertiv Raises Sales Forecast
Vertiv has exceeded expectations both in EPS and sales, with a 77% increase in EPS supported by a 26% rise in sales. These growth rates indicate robust underlying demand.
Importantly, Vertiv has raised its full-year 2025 sales guidance to a range of $9.1 – $9.3 billion, suggesting approximately 16% year-over-year growth.
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For the current fiscal year, the outlook remains positive, with the consensus EPS estimate of $3.59 per share indicating 26% year-over-year growth. Vertiv also holds a Zacks Rank of #2 (Buy).
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The valuation for Vertiv appears favorable, as indicated by a PEG ratio of 0.8X, reflecting a balance of growth and value. This ratio matches the five-year median while remaining below the five-year peak of 1.4X.
Conclusion
The AI sector has faced some challenges in recent weeks, as companies have been subjected to considerable selling pressure.
However, it is essential to note that NVIDIA (NVDA), Vertiv (VRT), and Palantir (PLTR) have experienced substantial growth over the past year, and the fundamental strengths of the AI narrative remain intact.
All three companies exhibit favorable EPS outlooks and hold bullish Zacks Ranks. With NVIDIA and Vertiv trading at lower valuations than historical averages, and Palantir showing reduced multiples from its highs, the recent pullback may offer an attractive entry point for investors keen on capitalizing on AI momentum.
Zacks Identifies Top Semiconductor Stock
This new semiconductor company is only 1/9,000th the size of NVIDIA, which has soared over 800% since our recommendation. While NVIDIA remains strong, this emerging stock has significant potential for growth.
With strong earnings growth and an expanding customer base, it is well-positioned to meet the growing demands for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to rise from $452 billion in 2021 to $803 billion by 2028.
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NVIDIA Corporation (NVDA): Free Stock Analysis report
Vertiv Holdings Co. (VRT): Free Stock Analysis report
Palantir Technologies Inc. (PLTR): Free Stock Analysis report
This article originally published on Zacks Investment Research (zacks.com).
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