Palantir (NYSE: PLTR) and Nvidia (NASDAQ: NVDA) are two of the best-performing stocks on the S&P 500 this year. In fact, they rank in second and third place for share price gains, respectively, behind only Vistra, an unregulated utility that has spiked on bets that the same artificial intelligence (AI) boom driving Palantir and Nvidia higher will create a surge in demand for electricity to power the data centers running AI workloads.
Both Palantir and Nvidia have rewarded their longer-term investors, but which is the better buy today?
Are You Missing The Morning Scoop?Breakfast News delivers it all in a quick, Foolish, and free daily newsletter. Sign Up For Free ?
Image source: Getty Images.
Business model: Nvidia vs. Palantir
Nvidia and Palantir are both known for their leadership in the artificial intelligence space, but the companies occupy entirely different positions in that industry.
Nvidia is a fabless semiconductor company that dominates the market for data center GPUs -- fast and powerful chips that are especially well suited to the specific demands of AI software. Last year, it reportedly had a market share of 98% in the data center GPU niche. While the company is facing increased competition from peers like Advanced Micro Devices and Intel, it has continued to push the envelope in accelerated computing with its new Blackwell chips, which are significantly faster and more powerful than its previous top-of-the-line Hopper architecture chips. So far, Nvidia has experienced "insane" demand for the Blackwell chips, according to CEO Jensen Huang.
The AI chip giant has also built up significant competitive advantages through its CUDA software platform and application programming interface, which provides an array of tools and libraries that can be used to speed up parallel computing tasks and greatly increase a system's productivity.
Nvidia has also been historically strong in the chip market for applications such as video games, autonomous vehicles, and visualization. However, the data center segment has come to dominate the business in the AI era.
Palantir, on the other hand, is a cloud software company that got its start 20 years ago serving U.S. intelligence agencies, helping them "connect the dots" as they mined their data for counterterrorism purposes, among others.
This business model, now known as data fusion, has gained traction with both the government and businesses in the AI era, especially following the launch of the Palantir Artificial Intelligence Platform (AIP). AIP, which combines the power of its machine learning technologies, allows users to search through their data with the accessibility and interactiveness of a large language model.
Palantir seems to be leading the charge on that front, thanks to its customer relations, competitive moat, and proven strength in data fusion.
Financials: Nvidia vs. Palantir
If you're wondering why Nvidia's stock has soared quite so much over the last two years, you only need to look at the company's top- and bottom-line numbers to find the answer. Through its fiscal 2025 second quarter, Nvidia has reported five straight quarters of triple-digit percentage revenue growth, and its profits have skyrocketed.
Its profit margin is now above 50%, and in that most recent quarter, which ended July 28, adjusted earnings per share jumped 152% on revenue that grew 122% to $30 billion.
Palantir is both much smaller and growing more slowly. In the third quarter, its revenue grew 30% to $726 million, and its GAAP (generally accepted accounting principles) income from operations nearly tripled year over year to $113 million.
Palantir's revenue growth has also accelerated for five quarters in a row.
Valuation: Nvidia vs. Palantir
Shares of both Nvidia and Palantir are trading at expensive valuations that reflect their strength in AI and rapid growth. Nvidia currently trades at a price-to-sales ratio of 36, while Palantir's multiple is an even loftier 55.
But both companies are solidly profitable. In terms of price-to-earnings ratio, Nvidia's is 65, while Palantir's is 170.
In short, both stocks carry big premiums today, but Nvidia seems to have the edge here.
Which is the better buy?
Both stocks have earned their gains this year, but the breakdown above makes it clear which one is the winner for investors buying in now. Nvidia is growing faster than Palantir. It's cheaper according to conventional valuation metrics, and its competitive advantages are more entrenched.
While both stocks have the potential to continue to outperform over the long term, Nvidia looks like the more reliable business to own here, and it's less at risk of a pullback.
Should you invest $1,000 in Nvidia right now?
Before you buy stock in Nvidia, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $900,893!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Nvidia, and Palantir Technologies. The Motley Fool recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
