December 28, 2025

Finance

Wall Street Identifies Top AI Stocks to Watch Through 2026, Highlighting Nvidia and Microsoft

Despite Palantir's Recent Gains, Analysts Favor Other Industry Leaders for Sustainable Growth

Maya Rios

Energy & Utilities Analyst

NVDA

AI Nvidia Microsoft Stocks Investment

Nvidia Corp

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Summary

Wall Street analysts have highlighted Nvidia and Microsoft as leading artificial intelligence stocks with significant upside potential heading into 2026. Although Palantir Technologies has exhibited remarkable share price gains recently, concerns regarding its valuation seem to have excluded it from key analyst recommendations. Nvidia and Microsoft stand out given their technological leadership and strong market positions tied to AI growth.

Key Points

Despite its impressive recent stock performance, Palantir is omitted from top AI stock recommendations due to valuation concerns.

Nvidia dominates the data center GPU market with over 90% share and benefits from a comprehensive full-stack AI hardware and software strategy.

Microsoft leverages its extensive enterprise software ecosystem and investment in OpenAI, incorporating AI copilots and expanding Azure's cloud platform.

Wall Street analysts project significant earnings growth for both Nvidia (48% annually through 2028) and Microsoft (16% annually through 2027), with respective upside potentials of 31% and 29%.

Microsoft’s exclusive access to OpenAI’s advanced AI models and revenue-sharing agreements contribute substantially to its AI-driven revenue stream.

In the rapidly evolving artificial intelligence (AI) sector, investors seeking durable opportunities through 2026 are increasingly focusing on companies with strong fundamental positions and growth trajectories. While Palantir Technologies has achieved an extraordinary stock performance surge—rising approximately 1,000% since January 2024—it has not been included on some prominent lists of the best AI stocks to buy currently, reflecting widespread concerns around its current valuation levels.

Instead, Nvidia Corporation and Microsoft have emerged as the leading picks among many Wall Street analysts, topping recent rankings, including one by Morningstar. These companies are closely followed by Amazon, Broadcom, and Meta Platforms, but Nvidia and Microsoft have particularly garnered bullish sentiment across the investment community.

Among 69 Wall Street analysts covering Nvidia, the median price target stands at $250 per share. This forecast suggests an approximate 31% increase from Nvidia’s prevailing market price of about $190. Meanwhile, Microsoft is tracked by 63 analysts, with a consensus median price target of $631 per share, implying roughly 29% potential upside from its current valuation near $488.

The fundamental appeal of Nvidia and Microsoft largely derives from their commanding market positions in AI technology, broad product ecosystems, and sustained investment in AI-driven platforms and infrastructure.

Nvidia’s Competitive Moat Anchored in GPU Dominance

According to Morningstar analyst Brian Colello, Nvidia commands an extensive economic moat credited to its leadership across multiple AI-related hardware and software domains. Its core business centers around graphics processing units (GPUs), specialized chips that accelerate complex data center workloads essential for machine learning training and inference.

Nvidia's advantage extends beyond GPUs to encompass an integrated suite of hardware components—including central processing units (CPUs), high-speed interconnects, and networking solutions—allowing the company to effectively provide comprehensive data center platforms. This holistic, full-stack strategy cements Nvidia’s predominance in facilitating AI workloads and infrastructure.

Moreover, over the past two decades, Nvidia has developed the CUDA software platform, a comprehensive collection of code libraries, pretrained models, and application frameworks. This ecosystem supports AI developers and reinforces Nvidia’s competitive edge. Although other firms, such as Broadcom, offer custom AI chips potentially at lower costs, their lack of extensive pre-built software frameworks often results in higher total ownership costs, thereby highlighting the value of Nvidia’s well-integrated hardware-software offerings.

Presently, Nvidia controls over 90% of the data center GPU market. This segment is expected to expand at an annual growth rate of approximately 36% through 2033, underpinning substantial revenue potential and likely sustaining Nvidia’s market leadership. Wall Street projects Nvidia’s adjusted earnings will grow by about 48% annually through the fiscal year concluding in January 2028, rendering Nvidia's forward earnings multiple near 47 times attractive in light of anticipated growth.

Microsoft’s Expansive Software Ecosystem and AI Integration

Microsoft holds the distinction of being the largest enterprise software company globally. Its flagship offering is Microsoft 365, a suite containing essential productivity applications including Excel, PowerPoint, and Word. Beyond this core, Microsoft maintains substantial involvement in diverse software sectors such as business intelligence, cybersecurity, and enterprise resource planning.

In response to AI developments, Microsoft has embedded generative AI copilots into several of its products. These integrations have driven rapid user adoption, with monthly active users soaring from 100 million in the June quarter to over 150 million in September. CEO Satya Nadella emphasized the suite’s penetration, noting that more than 90% of the Fortune 500 companies utilize Microsoft 365 Copilot.

Azure, Microsoft’s cloud platform, ranks as the second-largest public cloud provider based on infrastructure and platform service sales. Morningstar analyst Dan Romanoff highlighted Azure’s advantages, particularly its user-friendly approach for clients experimenting with and migrating workloads to the cloud. Additionally, Microsoft’s significant investment in OpenAI positions it as a leader in AI innovation. The company holds a 27% equity stake in OpenAI and maintains exclusive rights to OpenAI’s most advanced models, such as GPT-4 and GPT-5.

Financially, Microsoft benefits from an agreement where OpenAI shares 20% of its revenues with the tech giant. These payments are projected to exceed $1 billion this year—doubling from approximately $500 million the prior year. Wall Street forecasts Microsoft’s adjusted earnings will increase at a compound annual growth rate of about 16% through the fiscal year ending June 2027. Although this translates to a relatively higher valuation of 34 times earnings, Microsoft has consistently exceeded consensus earnings estimates by an average of 8% over the last four quarters, supporting the reasonableness of its valuation.

While Nvidia is viewed as offering greater immediate upside due to its faster projected growth, prudent investors may consider building positions in both companies to balance growth potential with established market presence in AI technology.

Risks

Potential competition in AI hardware could gradually erode Nvidia's current market dominance, despite its wide moat.
Microsoft's valuation, at 34 times earnings, is somewhat elevated, which might challenge returns if growth expectations are not met.
Uncertainties remain about how effectively Nvidia and Microsoft can maintain their competitive advantages amidst accelerating innovation and market shifts in AI technologies.
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Disclosure

This analysis is based solely on publicly available information and forecasts currently available as of the dates referenced. Investors should conduct their own due diligence and consider their individual financial situations before making investment decisions.

Wall Street Identifies Top AI Stocks to Watch Through 2026, Highlighting Nvidia and Microsoft

Summary

Key Points

Nvidia’s Competitive Moat Anchored in GPU Dominance

Microsoft’s Expansive Software Ecosystem and AI Integration

Risks

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