This is the best S&P 500 stock in 2024. History says it could rise in 2025, but Wall Street disagrees

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Palantir Technologies (NASDAQ: PLTR) just had an amazing year. The company was not just added S&P 500 (SNPINDEX: ^GSPC) 2024, but its 345% return made it the index’s best-performing stock. That advance was fueled by excitement around Palantir’s artificial intelligence platform, which has positioned the company at the center of a fast-growing market.

Importantly, history says Palantir could make a strong return in 2025, but most Wall Street analysts see a significant downside for the stock. Details are important here.

On the chart are those with the best performance S&P 500 stocks from each year of the past decade. The chart also shows the returns that each stock has made in the following calendar year, illustrating the idea that the best-performing index tends to maintain its momentum.

Year	Company	Return during the specified year	Return during the next year
in 2014	Southwest Airlines	125%	2%
in 2015	Netflix	134%	8%
2016	Nvidia	224%	81%
in 2017	NRG energy	132%	39%
in 2018	AMD	80%	148%
in 2019	AMD	148%	100%
2020	Tesla	743%	50%
in 2021	Devon energy	179%	40%
in 2022	Occidental Petroleum	117%	(5%)
in 2023	Nvidia	239%	178%
Average			64%

Data source: The Wall Street JournalCNBC, YCharts.

As shown, the top stocks in the S&P 500 in each year over the past decade have returned an average of 64% over the following calendar year. Additionally, the best stock in the index fell only once in the following year.

If we apply this information to Palantir, the probability of a positive return in 2025 is 90%. It also suggests that the most likely outcome is a 64% rise, which would lift Palantir stock above $125 per share.

Of course, past performance is never a guarantee of future returns. How Palantir stock will perform in 2025 will depend on the company’s financial results and investor sentimentwhich will be affected by the valuation at some point.

Palantir specializes in data analysis software. Its core products, Foundry and Gotham, enable companies to integrate and understand complex information. The company also sells an artificial intelligence platform, AIP, that adds support for large language models to its core products, allowing users to include Foundry and Gotham with natural language.

Forrester research recently recognized Palantir as a leader in AI and machine learning platforms, awarding AIP higher scores than similar tools from Alphabet– subsidiary of Google. “Palantir is quietly becoming one of the biggest players in this market,” the analysts commented. This is encouraging, as the International Data Corporation estimates that spending on AI platforms will grow by 40% annually through 2028.

Palantir reported strong third-quarter financial results, beating top-line and bottom-line estimates. Revenue rose 30% to $725 million, the fifth consecutive increase, and non-GAAP (generally accepted accounting principles) earnings rose 43% to $0.10 per diluted share. Particularly encouraging was the 40% increase in sales among US government clients, an area of the business that had been struggling. Management attributed its good results to demand for AIP.

In short, Palantir has secured a strong presence in the AI platform market, and spending in that market is predicted to grow rapidly in the coming years. Unfortunately, the share price has become disconnected from the fundamentals of the business. Wall Street estimates that Palantir’s adjusted earnings will grow 27% annually through 2025. That makes the current valuation of 225 times adjusted earnings look absurd.

Not surprisingly, Wall Street is extremely bearish on Palantir. In fact, only six S&P 500 companies have a higher percentage of sell ratings, and Palantir’s median 12-month target price of $39 per share implies a nearly 50% downside from the current share price of $77. To that end, I think investors should look elsewhere for opportunities in 2025.

Unless Wall Street is dramatically underestimating the company’s future earnings, Palantir stock is likely headed for a sharp correction at some point in the future. At that point, potential investors can reassess the situation and make a new decision.

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*Stock Advisor returns as of December 30, 2024

Suzanne Frey, CEO of Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine holds positions at Nvidia, Palantir Technologies and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Netflix, Nvidia, Palantir Technologies and Tesla. The Motley Fool recommends Occidental Petroleum and Southwest Airlines. The Motley Fool has a disclosure policy.

This is the best S&P 500 stock in 2024. History says it could rise in 2025, but Wall Street disagrees was originally published by The Motley Fool

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