Better Artificial Intelligence (AI) Stock: Palantir Vs. Nvidia

Two of the most popular investments in artificial intelligence (AI) today are Nvidia (NVDA 3.37%) and Palantir (PLTR 4.67%). 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 best investment choice between them? Let’s examine the evidence.

Palantir and Nvidia are not competitors

First, let’s break down their core businesses.

Nvidia makes graphics processing units (GPUs) and various pieces of hardware that support its GPU infrastructure. GPUs are the most popular choice for training AI models due to their flexibility. They can be easily configured to process intensive calculations due to their ability to process multiple calculations in parallel. Combine that with the ability to connect thousands of GPUs together, and Nvidia GPUs can quickly train AI models.

Palantir is on the application side of AI, with the basic premise of its software being input and insights. While Palantir serves both commercial and government customers, the biggest expansion of use in the latest round of AI product launches has been commercial customers. Palantir’s Artificial Intelligence Platform (AIP) gives its users the tools to integrate large language models (LLM) into a business, enabling AI to become embedded within a business rather than being a stand-alone tool used in parallel.

Palantir and Nvidia are at opposite ends of the AI ​​investment spectrum, but their business case on both sides is pretty clear. However, their financial situation is quite different.

Palantir’s growth pales in comparison to Nvidia’s

Given how popular an AI investment Palantir is, you might be surprised to learn that its second-quarter revenue growth rate was just 27% year-over-year. Now, for most companies, a 27% increase would be staggering, but with the pace of AI adoption and innovation, that may seem a little out of place. In addition, there are other software companies that are growing at a similar rate but are not focused on AI.

That doesn’t mean Palantir is a bad investment, though. But investors need to understand that it’s not Nvidia.

In the second quarter of fiscal 2025 (ended July 28), Nvidia’s revenue rose 122% year over year to $30 billion. So not only is Nvidia crushing Palantir in terms of gross growth rate, but it’s also a much bigger company, generating $30 billion in quarterly revenue versus Palantir’s $678 million.

According to Wall Street analysts, this revenue growth performance is expected to continue for the next two years.

NVDA revenue estimates for current fiscal year data by YCharts

According to these estimates, investors can expect these growth rates:

Data source: YCharts.

These are estimates, so they’re not perfect, but it’s pretty clear that Nvidia will outperform Palantir, at least until the next fiscal year. However, the prices these stocks are trading at are completely inappropriate.

NVDA PE Ratio data (before) by YCharts

Nvidia is much cheaper on a price-to-earnings (P/E) basis, but that’s not fair to Palantir, as it’s still working toward peak profitability.

To help with this comparison, let’s assume that Palantir can achieve 30% profit margins and grow its revenue at a 20% rate over the next five years. If it does, it would trade at 45 times trailing earnings at today’s prices. So for Palantir to trade around the same price as Nvidia now, you have to give up four years of profitability.

This shows how expensive Palantir stock is and pushes 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. Conversely, Nvidia looks like a much better buy than Palantir because it will still grow rapidly, but trades at a much more reasonable price (even if that price is a bit expensive).