Meet the artificial intelligence (AI) stock that could become the next Palantir or even better

Palantir Technologies (PLTR 0.56%) is quickly becoming the go-to provider of artificial intelligence (AI) software platforms for businesses and governments around the world. Evidence of this can be seen in the company’s recent acceleration of growth as well as increased revenue stream. Both values ​​point to better times ahead.

Investors took notice and bought Palantir stock out of hand. The stock is up 76% so far in 2024, and the following discussion offers clues as to why.

Palantir’s AI software platform has gained impressive traction

When Palantir released its second-quarter results last month, the company reported a year-over-year increase in revenue of 27% to $678 million. That was a solid improvement over the 13% year-over-year growth the company delivered in the same period last year, as well as an acceleration from its first-quarter revenue growth of 21%.

There has been a nice jump in the company’s customer base as well as the size of the deals it has closed with customers. Palantir’s management attributed the improvement in its growth profile to the growing adoption of its artificial intelligence platform (AIP). This is a software platform that helps businesses and governments integrate generative AI into their processes to help improve operational efficiency.

From helping customers build their own Large Language Model (LLM) applications to helping them accelerate their daily workflows with generative AI, Palantir’s AIP utility seems to have struck a chord in among customers. That explains why the company raised its revenue growth forecast for 2024 and expects the top line to grow 24% this year to $2.75 billion.

More importantly, Palantir looks capable of sustaining its remarkable growth over the long term, given that it ended the previous quarter with $4.3 billion in remaining deal value (RDV). Value refers to the total remaining value of Palantir’s contracts at the end of a period and was up 26% year-over-year in Q2.

This AI hardware giant is making inroads into the AI ​​software market

So Palantir seems poised to make the most of the huge end-market opportunity available in the generative AI software market. However, there is another way that investors can capitalize on the booming demand for AI software, and a closer look could lead investors to believe that it might be a better AI software stock than Palantir.

Nvidia (NVDA -4.08%) has been the go-to choice for companies looking to purchase state-of-the-art AI hardware so they can train AI models, resulting in a remarkable increase in the company’s revenue and earnings in recent months. What’s interesting is that CFO Colette Kress’ comments on the recent earnings conference call hint that Nvidia is starting to make a dent in the enterprise AI software market as well. According to Kress, “We expect our software, SaaS and support revenue to approach an annual run rate of $2 billion starting this year, with Nvidia AI Enterprise particularly contributing to the growth.”

CEO Jensen Huang also commented, noting that customers can deploy Nvidia AI Enterprise software for $4,500 per graphics processing unit (GPU) per year. With Nvidia’s AI GPUs priced at $30,000 or more for a single chip, depending on configuration, enterprise customers looking to build and deploy AI models get a good deal through Nvidia’s AI software platform .

Nvidia offers customers several AI software offerings. For example, the company’s AI Foundry platform, which launched in July this year, is an end-to-end solution with which customers can build and deploy custom generative AI models. Nvidia offers popular core designs that can be modified by its customers and can quickly move AI applications (including chatbots, content creation tools, and document processing tools) into production.

Nvidia also offers customizable, pre-built AI workflows that can be used to extract data from PDFs or deployed to create customer service workflows, accelerate drug discovery in medicine, or build apps Generative AI tailored to an organization’s needs. What is worth noting is that the adoption of Nvidia’s software solutions is growing at a tremendous pace thanks to artificial intelligence.

On the February earnings conference call, Nvidia management pointed out that its software and services offerings hit an annual revenue run rate of $1 billion in the fourth quarter of fiscal 2024. Thus, the revenue run rate of The company’s software and services is slated to double in the space of just one year. That’s much faster than the pace at which Palantir’s top line is set to grow this year.

Add in the fact that Nvidia is benefiting greatly from expanding demand for its AI chips, which has led to a 122% year-over-year increase in the company’s revenue in the second quarter of fiscal 2025 to $30 billion, and it’s easy to see that the chip maker is the more diversified play on AI. Another point worth noting here is that Nvidia stock is trading at 28 times sales, which is lower than Palantir’s sales multiple of 29.

Furthermore, Nvidia is the most attractive AI stock when we compare the earnings multiples of both companies.

NVDA Data ON Report by YCharts

So investors looking for a cheaper alternative to Palantir to take advantage of the growing AI software market would do well to take a closer look at Nvidia, especially given that the latter already has a thriving AI hardware business, which makes it a better growth stock to buy right now.