Comparing Palantir and Nvidia: Which AI Stock is a Better Investment?

Comparing Palantir and Nvidia: Which AI Stock is a Better Investment?

Software company Palantir Technologies (NYSE:PLTR) and chip company Nvidia (NASDAQ:NVDA) are two of the hottest stocks on Wall Street. Both stocks are up more than 240% over the past year and enjoy high loyalty among investors.

Is a artificial intelligence (AI) stocks better than the other? To find out, I compared them head to head to see why they are thriving and if they can continue. It was a very close race, but one came out just ahead of the other.

Here’s what you need to know.

Meeting with these two very different companies

Both stocks soared thanks to the fantastic performance of their underlying businesses. However, these two AI companies are very different. Nvidia has spent years specializing in high-performance GPUs, which have become ideal for data centers and AI. Nvidia’s high-quality products and CUDA software, which helps customers efficiently use the power of their GPUs, have enabled Nvidia to quickly take over the AI ​​chip market, estimated at 80 to 90 percent.

On the other hand, Palantir creates custom software applications for government and commercial applications. It runs three software platforms: Gotham, Foundry and AIP for AI applications. You can think of Palantir as an operating system that helps organizations use their data. The company’s intention is to increase human intelligence; it doesn’t replace it.

A closer look at each company’s growth

From a purely digital perspective, Nvidia is growing leaps and bounds faster than Palantir. You can see below how both companies began accelerating revenue growth in mid-2023, but Nvidia has soared thanks to massive data center spending from large technology customers, primarily in “Magnificent Seven.” Perhaps it’s fair to wonder how long this huge increase in data center spending from big tech will last.

One possibility is that these companies will start producing custom chips in-house, weaning themselves off of Nvidia’s. This could harm the long-term growth of a company that currently derives most of its revenue from a small handful of customers.

Comparing Palantir and Nvidia: Which AI Stock is a Better Investment?

NVDA Revenue Chart (YoY Quarterly Growth)

Speaking of Palantir, the company is not as explosive as Nvidia. But what impresses me is the company’s growing customer base. Palantir’s U.S. customer base grew 55% year-over-year in the fourth quarter and 22% quarter after quarter. Customers come in all shapes and sizes, so this is not an accurate translation. Such customer growth bodes well for long-term revenue growth.

Maybe Nvidia’s customer concentration won’t matter and Nvidia’s chips will maintain their market share. Still, I would like to see customer expansion like Palantir’s.

What is the best value for money?

Analysts expect significant profit growth for both companies in the future. Ultimately, this makes both stocks cheaper than you might think after their two 200% gains. I like to use the PEG ratio to compare how much I’m paying for a company’s earnings growth. The lower the PEG ratio the better, and I’d like to spend less than 1.5 if I can.

Nvidia meets this criteria with a PEG ratio of just over 1. Palantir doesn’t quite fit, with its PEG ratio of 1.6.

NVDA PE Ratio Chart (Forward)NVDA PE Ratio Chart (Forward)

NVDA PE Ratio Chart (Forward)

Nvidia offers the best value today, based on each company’s expected long-term earnings growth. Of course, the question is whether each company will live up to expectations.

The verdict is…

Both companies are great AI stocks and leaders in their respective fields. Both are accelerating their revenue growth. Naturally, analysts are very optimistic about each company’s future earnings growth. Whichever company you think is most likely to meet growth expectations over the next three to five years will likely be a winner.

This fool gives Palantir a slight advantage. For what?

Palantir gets about half of its revenue from government contracts. The company’s long history with the government could provide a small boost to Palantir’s business, along with the benefits of expanding its customer base. At the same time, Nvidia’s customer concentration could pose a problem if a major customer opts for a different chip.

While the numbers point to Nvidia as the better buy, there’s an argument that investors can have a little more confidence in Palantir’s long-term growth, especially when looking at the long term.

Should you invest $1,000 in Palantir Technologies right now?

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool ranks and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.

Best artificial intelligence (AI) stock: Palantir vs. Nvidia was originally published by The Motley Fool

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