These 2 ‘overvalued' US tech stocks could rip higher in the second half of 2025

Despite being in overbought territory, Bank of America analysts believe Palantir Technologies (PLTR) and Cadence Design Systems (CDNS) have further upside potential, driven by company-specific strengths; BofA raised its price target for PLTR to $150, citing its differentiated AI offering and rapid customer onboarding, while highlighting CDNS's resilience to tariff risks and leading position in electronic design automation, both companies recently reported strong Q1 results and raised full-year guidance.

Analysis

Despite a recent relief rally pushing some U.S. tech stocks into 'overbought' territory following a U.S.-China trade truce, Bank of America Securities identifies continued upside potential for Palantir Technologies (PLTR) and Cadence Design Systems (CDNS) into the second half of 2025. For Palantir, BofA raised its price target to $150, suggesting a 15% potential upside from current levels, even after a ~75% rally in the past month. This optimism stems from Palantir's differentiated offering in leveraging AI for tangible results, alongside its accelerated product deployment and customer onboarding, as highlighted by analyst Mariana Perez Mora. Palantir's strong Q1 performance and raised full-year revenue guidance further support this view, though its current valuation surpasses even Nvidia and it offers no dividend. Similarly, Cadence Design Systems is recommended by BofA due to its status as a 'high quality compounder with resilient complexity leverage' and relative insulation from tariff-related risks. BofA analysts appreciate CDNS's leading position in the Electronic Design Automation (EDA) industry, which benefits from secular semiconductor trends but exhibits more muted cyclicality. Cadence also reported a strong first quarter and increased its full-year outlook, with BofA noting its 'defensiveness/scarcity value' and unique benefit from rising chip complexity. Like PLTR, CDNS trades at a premium on a forward price-to-earnings basis compared to NVDA and does not pay a dividend, making it less suitable for income-focused investors.

Key Decisions for Investors

• Investors might consider allocating to Palantir (PLTR) based on Bank of America's $150 price target and its strong positioning in the AI sector, despite its high valuation and recent significant stock appreciation.
• Cadence Design Systems (CDNS) could be an attractive holding for investors seeking exposure to the semiconductor industry with reduced cyclicality and tariff risk, given its leadership in EDA and strong financial outlook, though its valuation is also elevated.
• Both PLTR and CDNS are growth-oriented investments rather than income plays, as neither currently pays dividends, so portfolio suitability should be assessed accordingly, weighing BofA's bullish outlook against existing overbought conditions and premium valuations.