Palantir Technologies (PLTR 0.44%) and Amazon (AMZN 0.63%) beat the S&P 500 (^GSPC 1.04%) over the past year, and both companies should benefit as adoption of artificial intelligence (AI) increases. But Brent Thill at Jefferies has a sell rating on Palantir and a buy rating on Amazon, as detailed below:

• Thill recently raised his target price on Palantir to $60 per share. That forecast still implies 49% downside from its current share price of $117.
• Thill recently set his target price on Amazon at $275 per share. That forecast implies 20% upside from its current share price of $230.

More broadly, Wall Street is thinking along the same lines. Palantir's median target price of $96 per share implies 18% downside, and Amazon's median target price of $270 per share implies 17% upside. Here's what investors should know about these AI stocks.

Palantir Technologies: The stock Thill estimates could fall 49%

Palantir reported fourth-quarter financial results that crushed Wall Street estimates on the top and bottom lines. Its customer count rose 43% to 711, and the average existing customer spent 20% more. In turn, revenue increased 36% to $828 million as sales growth accelerated across commercial and government customers. In addition, non-GAAP net income surged 75% to $0.14 per diluted share.

Palantir has a particularly strong presence in the artificial intelligence (AI) platforms market, and that was a major source of momentum in the fourth quarter. "Our business results continue to astound, demonstrating our deepening position at the center of the AI revolution," said CEO Alex Karp.

During a recent CNBC interview, Brent Thill at Jefferies praised Palantir for strong execution, crediting the company for monetizing AI more effectively than many peers. But he views the present valuation as unsustainable. To elaborate, Palantir has a forward price-to-sales (PS) ratio of 56. Thills says no software company has ever sustained that multiple.

He drew an interesting analogy to Snowflake. That stock had a forward price-to-sales ratio (P/S) above 55 in November 2021, but Snowflake shares fell 70% in the next six months. That's particularly ominous for Palantir shareholders because Snowflake was reporting quarterly sales growth above 100%, even as its stock started to crash. By comparison, Palantir reported quarterly sales growth below 40% in the most recent quarter.

That doesn't mean Palantir shares are headed for a 70% correction. But prospective investors should be cautious chasing the stock at its current valuation.

I think better buying opportunities will present themselves in the future. Additionally, current shareholders who are uncomfortable with the idea of a large drawdown should consider selling some stock, especially if they currently have a large position in Palantir.

Amazon: The stock Thill estimates could rise 20%

Amazon reported solid fourth-quarter results that beat estimates on the top and bottom lines. Revenue rose 10% to $188 billion on good momentum in cloud and advertising services. Meanwhile, GAAP net income increased 86% to $1.86 per diluted share as operating margin expanded 350 basis points due to logistics efficiencies driven by robotics and better inventory placement.

However, Amazon gave guidance that missed expectations. The company expects revenue to increase just 7% in the first quarter as the strong U.S. dollar creates currency-exchange headwinds. Additionally, the company estimates operating income will increase just 5% as investments in artificial intelligence and logistics capacity hurt margins. The stock declined following the report as investors mulled management's outlook.

Concerns about higher operating expenses and capital expenditures are overblown. That spending will lay the foundation for durable growth in the coming years. Amazon operates the largest e-commerce marketplace outside of China, and Amazon Web Services is the largest public cloud worldwide. Investments in logistics capacity and AI infrastructure should further strengthen its position in those markets.

Indeed, Brent Thill at Jefferies recently told CNBC that investors should expect lower margins in the coming quarters. But he believes those temporary headwinds will eventually translate into strong sales growth and higher margins. "When you have 50% market share in cloud, you have a huge advantage in AI," he added.

Wall Street expects Amazon's earnings to increase at 17% annually over the next two years. That makes its current valuation at 41 times earnings look somewhat expensive. But I think analysts are underestimating earnings growth.

Amazon beat the consensus estimate by an average of 29% (as measured in dollars) in the last six quarters. If that pattern continues, the stock would look cheap in hindsight. Patient investors should feel comfortable buying a few shares today.