Two of the most popular investments in artificial intelligence (AI) today are Nvidia (NASDAQ: NVDA) And Palantir (NYSE:PLTR). These companies represent opposite ends of the AI investment spectrum, with Nvidia on the hardware side and Palantir on the software side.
These two have dominated their respective industries, but which is the better investment choice between them? Let’s examine the evidence.
Palantir and Nvidia are not competitors
Let’s break down their core activities first.
Nvidia makes graphics processing units (GPUs) and various hardware components that support the GPU infrastructure. GPUs are the most popular choice for training AI models due to their flexibility. They can be easily configured to handle intensive calculations because they can process multiple calculations in parallel. Combine that with the ability to connect thousands of GPUs together, and Nvidia’s GPUs can quickly train AI models.
Palantir is on the application side of AI, where the premise of the software is data in and insights out. While Palantir serves both commercial and government customers, its biggest usage expansion during the most recent round of AI product launches has been with commercial customers. Palantir’s Artificial Intelligence Platform (AIP) gives its users the tools to integrate large language models (LLMs) across an enterprise, allowing AI to be integrated across the enterprise rather than being a standalone tool used alongside it.
Palantir and Nvidia are on opposite sides of the AI investment spectrum, but their business case in both parts is quite clear. However, their financial situation is very different.
Palantir’s growth pales in comparison to Nvidia’s
Considering how popular an AI investment Palantir is, you might be surprised to learn that second-quarter revenue growth was only 27% year-over-year. For most companies, 27% growth would be astonishing, but given the pace of AI adoption and innovation, this may seem a bit out of place. Moreover, there are other software companies that are growing at a similar pace but do not focus on AI.
Still, that doesn’t mean Palantir is a bad investment. But investors need to understand that it’s not Nvidia.
In the second quarter of fiscal 2025 (ending July 28), Nvidia’s revenue rose 122% year over year to $30 billion. So not only is Nvidia crushing Palantir in terms of raw growth, but it’s also a much larger company, generating $30 billion in quarterly revenue to Palantir’s $678 million.
According to Wall Street analysts, this sales growth is expected to continue in the coming years.
NVDA revenue estimates for current fiscal year data based on YCharts
According to these estimates, investors can expect these growth rates:
|
Financial year |
Nvidia revenue growth rate |
Palantir revenue growth rate |
|---|---|---|
|
Current fiscal year |
106% |
24% |
|
Next financial year |
41% |
20% |
|
Two financial years ahead |
17% |
20% |
Data source: YCharts.
These are estimates, so they’re not perfect, but it’s pretty clear that Nvidia will outgrow Palantir, at least until the next fiscal year. However, the prices at which these stocks trade are completely mismatched.
NVDA PE Ratio (Forward) data according to YCharts
Nvidia is much cheaper from a price-to-earnings ratio (P/E) perspective, but that’s not fair to Palantir as it is still working to achieve maximum profitability.
To clarify this equation, let’s say that Palantir can achieve a 30% profit margin and grow its revenue by 20% over the next five years. If it does, it would trade at 45 times trailing earnings at current prices. So if Palantir wants to trade around the same price as Nvidia does now, you’ll have to give up four years of returns.
This shows how expensive Palantir’s stock is and forces me to recommend Nvidia over Palantir in this matchup. Palantir is a fantastic company, but the expectations built into its current valuation are far too high. Instead, Nvidia seems like a much better buy than Palantir, as it will still grow quickly but trade at a much more reasonable price tag (even if that price tag is a bit expensive).
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Keithen Drury has no positions in any of the stocks mentioned. The Motley Fool holds and recommends positions in Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.
