Nvidia (NVDA) and Palantir (PLTR) have been two of the hottest AI stocks in 2024, with both delivering impressive triple-digit gains in their share prices. However, when it comes to the best AI stock for long-term investors, which one stands out? While I maintain a bullish outlook on both, a closer look using the TipRanks Stock Comparison Tool suggests that Nvidia is the better investment. The company is more established in terms of margins, and while its growth may slow in the coming years, its valuations are much more justifiable compared to Palantir’s.
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Nvidia and Palantir: A Deep Dive into Their AI Journeys
Before delving into the bullish points for both companies, it’s important to provide some context. Within the AI space, Nvidia has emerged as a leader, with its GPUs powering a wide range of AI models and data processing tasks. Meanwhile, Palantir is a software company focused on data analytics platforms, leveraging artificial intelligence (AI) and machine learning technologies to help organizations make data-driven decisions. While Palantir has traditionally focused on government contracts, it is increasingly expanding into the commercial sector with its Foundry and AIP platforms, which utilize Palantir’s AI tools to analyze big data and generate operational insights.
Over the past twelve months, Nvidia’s revenues have surged by 152% year-over-year, maintaining a 67% CAGR over the last three years. Looking ahead, estimates suggest Nvidia will expand revenues by 111% in Fiscal 2025, with a gradual decline in the growth rate to 51%, 20.6%, and 13.8% by Fiscal 2028, respectively.
In contrast, Palantir’s growth has been more gradual. Over the last twelve months, the company’s top-line revenue grew by 24.5% year-over-year and at a 22.7% CAGR over the past three years. Analysts projections indicate more consistent growth, with revenues expected to rise by 25.5% in 2024 and 24.2% in 2025. Between 2026 and 2028, revenues are expected to grow at rates of 21% and 24%, respectively.
Evaluating Nvidia and Palantir’s Profit Margins
Starting with Nvidia, a large part of the bullish outlook for the company is driven by its robust top-line growth, as mentioned earlier, coupled with strong operating margins of 62.7%, which is quite impressive. The main leverage for Nvidia in this context can be attributed to economies of scale. As demand for its GPUs booms, the company produces and sells more units, which lowers its per-unit production costs. This allows Nvidia to maintain high margins even as it scales up production.
Looking ahead, Nvidia is forecasting continued profitability improvements, particularly with the introduction of its next-generation Blackwell technology. While the initial ramp-up may slightly reduce gross profit margins, management expects margins to rise again in the latter half of the year.
Meanwhile, Palantir, while also deserving of a bullish outlook, lags behind Nvidia with operating margins of 13.8%. However, Palantir is improving at a much faster pace. It’s important to note that the company’s operating profit margin has risen dramatically from -120% in 2021 to 13.8% in the most recent update. Palantir is expecting further profit growth as it continues to do an excellent job controlling costs while revenues increase.
Comparing Valuations and Growth Potential
One of the most sensitive points in the bullish thesis for both Nvidia and Palantir is their valuations, as both companies are trading at very stretched multiples.
Nvidia currently trades at a P/E ratio of 49x for Fiscal 2025. However, when adjusting for growth—considering projections that the company will continue to expand EPS at a CAGR of 35.4% over the next three to five years—Nvidia’s PEG ratio is 1.4x, which seems quite reasonable for a company with such strong fundamentals.
On the other hand, Palantir, which reported its first profitable year in 2023, is trading at a forward P/E ratio of 184x. Even when adjusting for forecasted EPS growth of 27.5% over the next three to five years (which is still robust), it’s hard to argue that the stock isn’t overvalued, with a PEG ratio of 6.7x—more than 4.5x higher than Nvidia’s.
From a top-line perspective, Palantir is currently trading at a price-to-sales multiple of 57x for this year, and around 49x for 2025. In terms of cash flow, the company is trading at an eye-watering 159x. In comparison, Nvidia is trading at a relatively high 60x price-to-cash-flow, which now looks like a bargain compared to Palantir.
Tracking Momentum and Stock Performance
To conclude, the final point in the comparison between Palantir and Nvidia is the recent momentum of both stocks, which has been bullish, albeit to different extents. Over the past three months, Nvidia’s stock has risen by 36%, while Palantir’s stock has surged by 128%, at last check.
The primary explanation for this disparity likely lies in Nvidia’s last two earnings reports. Despite being strong and surpassing expectations across the board, these reports did not have as significant an impact on the stock price. The market had set very high expectations, and minor issues, such as a slight decline in gross margin from 75.1% to 74.6% in Q3 of Fiscal 2025, were enough to temper the euphoria.
Conversely, Palantir has consistently exceeded expectations in the last two quarters, with strong beats across all metrics. Moreover, the company’s management has repeatedly raised its guidance for revenues, operating income, and cash flows, signaling that the demand for its AI software services has exceeded expectations. This has led to challenges in accurately forecasting future results, even for the management team.
Is NVDA a Good Buy?
According to TipRanks, Wall Street analysts are generally very bullish on Nvidia. Out of 40 analysts, 37 have a bullish recommendation, resulting in an average price target of $176.14, which implies an upside potential of 21.43%.
Is PLTR a Good Buy?
On the contrary, the consensus on Palantir is much more cautious. Of the 16 analysts covering the stock, 7 have a neutral recommendation, while six are bearish. This results in a consensus rating of Hold, with an average price target of $38.73, suggesting a downside potential of 46.1%.
Conclusion
While I’m bullish on both Nvidia and Palantir, I think Nvidia takes the crown for now. Nvidia stands out as the more established company in terms of margins. It still has significant growth potential, likely positioned somewhere in the middle of its hyper-growth phase, and is trading at a much more attractive valuation. For these reasons, I consider it a better pick for a solid long-term play.
Palantir, on the other hand, certainly deserves a premium, given its impressive growth on both the top and bottom lines. The demand for its software is so high that even the management team can’t predict just how far it can go. However, despite all the hype and the constant upward revisions of projections, the stock’s multiples have become downright extreme, making Nvidia look like a bargain in comparison.
