Better Artificial Intelligence (AI) Stocks: Palantir vs. Nvidia

Two of the most popular artificial intelligence (AI) investments today are Nvidia (NVDA 3.37%) and palantir (PLTR 4.67%). These companies represent opposite ends of the spectrum in AI investing, with Nvidia on the hardware side and Palantir on the software side.

These two dominate their respective industries, but which one is your better investment choice? Let’s examine the evidence.

Palantir and Nvidia are not competitors

First, let’s analyze their core business.

Nvidia manufactures graphics processing units (GPUs) and a variety of hardware that supports GPU infrastructure. GPUs are the most popular choice for training AI models due to their flexibility. It can process multiple calculations in parallel and can be easily configured to handle intensive calculations. Combine this with the ability to connect thousands of GPUs, and Nvidia’s GPUs can quickly train AI models.

Palantir is on the application side of AI, and the basic premise of its software is data input and insight output. Although Palantir serves both commercial and government customers, the largest expansion in usage from recent AI product launches has been with commercial customers. Palantir’s Artificial Intelligence Platform (AIP) provides users with the tools to integrate large-scale language models (LLM) into their business, allowing AI to be integrated across the business rather than as a standalone tool used on the side. Masu.

Palantir and Nvidia are on opposite ends of the spectrum when it comes to AI investing, but the business case for both companies is very clear. However, their financial situations are completely different.

Palantir’s growth pales in comparison to Nvidia’s

Palantir is such a popular AI investment that you might be surprised to learn that its second quarter revenue growth was just 27% year-over-year. For most companies, 27% growth is impressive, but given the pace of AI adoption and innovation, this may seem a little out of place. Additionally, there are other software companies that are growing at a similar pace but are not focused on AI.

However, that doesn’t mean Palantir is a bad investment. But investors need to understand that it’s not Nvidia.

Nvidia’s revenue for the second quarter of fiscal 2025 (ending July 28) increased 122% year-over-year to $30 billion. So not only does Nvidia dwarf Palantir in terms of growth, it’s also a much larger company with quarterly sales of $30 billion compared to Palantir’s $678 million.

This outpacing revenue growth is expected to continue for years to come, according to Wall Street analysts.

NVDA earnings forecast data for this year by YCharts

According to these estimates, investors can expect the following growth rates:

Data source: YCharts.

These are estimates, so they’re not perfect, but it’s pretty clear that Nvidia will outgrow Palantir, at least through next year. However, the trading prices of these stocks are not completely consistent.

NVDA PE Ratio (Forward) Data by YCharts

Although Nvidia is much cheaper from a forward price/earnings ratio (P/E) perspective, this is unfair to Palantir as it strives to achieve maximum profitability.

To make this comparison easier to understand, let’s assume Palantir can achieve a 30% profit margin and grow its revenue at a 20% pace over the next five years. If that happens, it would trade at a P/E ratio of 45x at today’s prices. Therefore, for Palantir to trade at the same price as Nvidia today, it would have to give up four years of revenue.

This shows how expensive Palantir’s stock is, and I tend to recommend Nvidia over Palantir in this matchup. Palantir is a great company, but the expectations built into its current valuation are too high. If anything, Nvidia looks like a much better buy than Palantir. That’s because Nvidia will continue to grow rapidly while trading at a much more reasonable price (even if that price is a little more expensive).