The most popular stock in the artificial intelligence (AI) software space is undoubtedly Palantir (NYSE: PLTR). The stock is up an incredible 160% this year and dwarfs the performance of the software company that most want to be when they grow up: Adobe (NASDAQ: ADBE).
Adobe's stock is down 15% this year, but it also belongs in the AI conversation because it is heavily pursuing the AI image-generation market as well as AI video. However, despite Palantir's fantastic year and Adobe's poor one, Wall Street thinks investors would be wise to sell Palantir and buy Adobe.
Why? Well, the answer centers around valuation.
Palantir's AI platform is designed to give anyone with decision-making power the most up-to-date information possible. It involves processing multiple data streams simultaneously and then harnessing the power of AI to make recommendations. Originally, this software was designed for government use, but it has also made its way into the commercial sector.
More recently, Palantir's new product, Artificial Intelligence Platform (AIP), has gained steam. AIP allows companies to build generative AI into their business systems, which turns AI from a tool someone might use on the side to one integrated into workflows. This is a critical step, as it controls what information a large language model sees and prevents sensitive information from entering another company's database.
Adobe isn't quite as technologically advanced as Palantir. Its product suite is the industry standard for graphics design, but Adobe isn't asleep at the wheel. It has added Firefly to its product lineup, allowing creators to adjust images or create new ones with text input. However, many generative AI models already have this capability, so Firefly isn't setting it apart.
Few models can generate AI video, yet Adobe is nearing the full-scale launch of Firefly Video. With Adobe at the forefront of this fundamental change in how people work, it isn't at risk of being replaced anytime soon. However, the stock doesn't get as much respect as it used to.
Both Palantir and Adobe have legitimate investment theses and are strong AI companies. However, Wall Street is much more bullish on Adobe than Palantir, and I agree.
Wall Street currently has an average price target of $27.67 on Palantir's stock, indicating about 35% downside. Adobe's one-year average target is $621.15, indicating about 25% upside (both consensus targets are from TipRanks).