Nvidia (NASDAQ: NVDA) And Palantir (NASDAQ:PLTR) are two of the best performing stocks on the market this year, and artificial intelligence is the main reason.
Nvidia needs little introduction at this point. The chip stock has come to dominate the data center GPU (graphics processing unit) market during the AI boom, which has boosted the stock price about tenfold since early 2024. Palantir, meanwhile, has emerged as the biggest winner in the market. software from AI as its experience with deep data mining, known as data fusion, has paid off, especially since the launch of its artificial intelligence platform (AIP) last year.
As the chart below shows, both stocks have soared this year.
So, which is the better buy today? Let’s take a look at the details of what each stock has to offer.
Nvidia has established itself as the leading chip design company, thanks to its prowess in AI and its investments in areas such as the CUDA software library, which give it a competitive advantage.
As a result of its broad lead in AI-focused components like the new Blackwell platform, Nvidia is currently generating huge profit margins with a generally accepted accounting principles (GAAP) operating margin of 62% in the third quarter.
The company has built an all-star culture focused on innovation, and it seems likely that it will stay ahead of the competition in AI chips. It depends on foundries such as Taiwanese semiconductor manufacturing company for manufacturing and is vulnerable to cyclicality and broader concerns about an AI bubble. The semiconductor industry is notoriously cyclical and prices and inventory levels can change quickly. Therefore, Nvidia’s biggest risk is likely a change in industry dynamics, which would pose a growth threat rather than a competitive threat.
Palantir began serving U.S. intelligence agencies after September 11, helping them connect data points to find threats they would otherwise have missed. Palantir has since expanded its product suite to specialize in a wide range of business needs, including cryptocurrency, data protection and money laundering prevention.
The main software platforms are Gotham, Foundry, Apollo and Artificial Intelligence Platform (AIP). Gotham and Foundry are focused on turning massive amounts of information into a useful data set.
Apollo is a layer for commercial customers that allows them to run their software in virtually any environment, and AIP is working with Gotham and Foundry to use machine learning to accelerate insights.
Palantir has a relatively small number of high-paying customers, which means it deals in large contracts. Due to the size and complexity of the contracts, the company faces relatively little competition from other software companies. Instead, it views its customers’ internal software development efforts as its biggest competitor.
Like Nvidia, Palantir is also at risk of an industry-wide downturn, although its competitive position appears resilient given the specialized nature of its businesses.
Both Nvidia and Palantir have achieved impressive results, but one company is clearly growing faster than the other.
Nvidia reported 94% revenue growth in the third quarter to $35.1 billion, with net profit of $19.3 billion, up 109% from the year before.
Palantir, on the other hand, reported 30% revenue growth to $726 million, with strong results in the US and its commercial segment. Net profit rose 103% to $149.3 million, while margins expanded rapidly.
Palantir’s explosive growth this year is largely due to multiple expansions. As a result, the stock is trading at a sky-high valuation. Palantir now trades at a price-to-earnings ratio of 75 and a price-to-earnings ratio of 411 on a GAAP earnings basis.
Nvidia stock looks more reasonable. It currently trades at a price-to-sales ratio of 31 and a price-to-earnings ratio of 55.
Both companies have a lot to offer investors, especially if demand for AI continues to grow, but if we look at both stocks holistically, Nvidia is the better buy.
Palantir’s business is certainly intriguing. It has proven its value to customers and appears to have a meaningful competitive advantage. However, its valuation carries significant risk as the stock could easily plummet if it does not live up to expectations.
Nvidia, on the other hand, also seems poised for similar growth, but with less downside risk.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Nvidia, Palantir Technologies, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
Better AI Stocks: Nvidia vs. Palantir? was originally published by The Motley Fool
