Better AI Buy Right Now: Nvidia vs Palantir

Nvidia (NASDAQ: NVDA) and Palantir Technologies (NASDAQ: PLTR) are two companies that have greatly benefited from the rise of artificial intelligence (AI). Over the past year, both stocks have experienced significant gains, with Nvidia's shares climbing 171%, marking it as the top performer in the Dow Jones Industrial Average. Meanwhile, Palantir saw an even more impressive surge of 340%, making it the best performer in the S&P 500. Their recent inclusion in these major indexes reflects their influential roles in shaping the economy.

Both companies have reported record earnings, fueled by high demand from AI customers. Currently, the AI market is valued at $200 billion and is forecasted to exceed $1 trillion, indicating potential for further growth. This scenario makes both companies attractive options for investment. However, if you had to choose one, which company offers a better investment opportunity at this time? Let's explore.

The case for Nvidia

Nvidia is synonymous with artificial intelligence for many, thanks to its strong position in the industry. The company leads in sales of graphics processing units (GPUs), which are vital for training and running AI models. Additionally, Nvidia provides an extensive range of AI products and services, positioning itself as a comprehensive resource for all things AI.

Major tech corporations, including Meta Platforms and Microsoft, rely on Nvidia's technology to enhance their capabilities in the AI sector. This has resulted in overwhelming demand for Nvidia’s latest offering, the Blackwell architecture, which has outstripped supply. The company anticipates that this new product will bring in several billion dollars in revenue during its initial commercialization phase that concluded in late January.

Nvidia's financial performances have consistently exceeded market expectations, with double- to triple-digit revenue growth reported each quarter. Investors look forward to the upcoming earnings report on February 26, which is expected to positively impact the stock price.

The case for Palantir

Palantir focuses on software solutions that enable organizations to consolidate their data and utilize it for informed decision-making and automation of processes. Initially known for its government contracts, Palantir has recently expanded its focus to capture commercial clients, which are now driving significant growth.

One notable product from Palantir is its Artificial Intelligence Platform (AIP), launched in 2023. AIP uses AI to help clients utilize large language models effectively, allowing them to exploit their data in new ways. For example, a global insurance company has utilized AIP to streamline its underwriting process, reducing the time required from two weeks to just three hours. Such efficiency improvements have led this customer to increase its contract with Palantir by about $11 million in the last quarter.

This momentum has translated into strong financial results for Palantir. The company reported double-digit revenue growth in both government and commercial sectors, a trend expected to continue. Palantir has projected that its U.S. commercial revenue will soar by at least 54% this year, reaching over $1 billion.

Should you buy the chip designer or the software player?

Both Nvidia and Palantir demonstrate substantial growth potential in the evolving AI landscape. Nvidia is likely to see sustained demand for its GPUs as the foundation of AI infrastructure continues to develop. Furthermore, the company is well-positioned to capitalize on the broad adoption of AI across various industries.

On the other hand, Palantir's offerings could significantly reshape how companies operate by integrating AI into their workflows, thereby achieving cost reductions and faster processes. Existing customers are realizing these benefits, resulting in enhanced partnerships with Palantir.

Choosing between Nvidia and Palantir can be challenging, but a crucial factor to consider is valuation. Currently, Nvidia's stock is trading at a forward price-to-earnings ratio of 26, in stark contrast to Palantir's ratio of 171. This makes Nvidia appear to be a more attractive investment opportunity, offering significant growth potential at a compelling valuation. Thus, while both companies are solid investment choices, Nvidia represents the better AI buy currently.

This analysis is authored by a financial analyst with insights on technology investments, with no direct positions in either stock mentioned.

AI, stocks, investment