Nvidia (Nasdaq: NVDA) and Palantir (NASDAQ:PLTR) They have been two of the best-performing stocks in the market this year, and AI is the main reason.
Nvidia needs little introduction at this point. The chip stock has come to dominate the market for graphics processing units (graphics processing units) in data centers in the AI boom, sending its stock price up about 10 times since the start of 2024. Meanwhile, Palantir has emerged as the biggest winner in the… Deep data mining, known as data fusion, has been bearing fruit, especially since the launch of the Artificial Intelligence Platform (AIP) last year.
As the chart below shows, both stocks have risen this year.
So, what is today’s best buy? Let’s get into detail about what each stock offers.
Image source: Getty Images.
Nvidia has established itself as a leader in chip design, thanks to its AI prowess and investments in areas like its CUDA software library, which give it a competitive advantage.
As a result of its extensive progress in AI-focused components such as the new Blackwell platform, Nvidia is currently generating huge profit margins with generally accepted accounting principles (Generally accepted accounting principles) Operating margin was 62% in the third quarter.
The company has built a distinct culture focused on innovation, and appears likely to remain ahead of the competition for AI chips. It depends on the foundries like Taiwan Semiconductor Manufacturing Company For manufacturing, it is vulnerable to cyclical fluctuations and broader concerns about an AI bubble. the Semiconductor industry They are known to be cyclical and prices and inventory levels can change quickly. Therefore, the biggest risk Nvidia faces is likely a change in industry dynamics that would threaten its growth rather than a competitive threat.
Palantir began serving US intelligence agencies after 9/11, helping them connect data dots to find threats they would otherwise miss. Palantir has since expanded its product portfolio to specialize in a wide range of business needs, including cryptocurrencies, data protection, and money laundering prevention.
Its major software platforms include Gotham, Foundry, Apollo, and Artificial Intelligence Platform (AIP). Gotham and Foundry focus on taking massive amounts of information and turning it into a useful data set.
Apollo is a layer for commercial customers that allows them to run their software in almost any environment, and AIP is working with Gotham and Foundry to use machine learning to accelerate insights.
Palantir has a relatively small number of high-paying clients, which means it handles large contracts. The size and complexity of its contracts means that the company faces relatively little competition from other software companies. Instead, it sees its customers’ in-house software development efforts as its biggest competitor.
Like Nvidia, Palantir also faces the risk of sector decline, although its competitive position appears resilient, given the niche nature of its business.
Both Nvidia and Palantir have had impressive results, but one company is clearly growing faster than the other.
Nvidia reported revenue growth of 94% in the third quarter to $35.1 billion, with net income of $19.3 billion, up 109% from the previous year.
On the other hand, Palantir reported a 30% revenue growth to $726 million with strong results in the US and its commercial segment. Net income jumped 103% to $149.3 million as its margins rose rapidly.
Palantir’s explosive growth this year came largely from multiple expansions. As a result, the stock is trading at a very high valuation. Palantir now trades at a price-to-sales ratio of 75 and a price-to-earnings ratio of 411 based on GAAP earnings.
Nvidia stock makes more sense. It is currently trading with a price-to-sales ratio of 31 and a price-to-earnings ratio of 55.
These two companies have a lot to offer investors, especially if demand for AI continues to grow, but looking at both stocks holistically, Nvidia is the better buy.
Palantir’s work is certainly interesting. It has proven its value to customers and appears to have a meaningful competitive advantage. However, its valuation represents a significant risk as the stock could easily decline if it misses expectations.
On the other hand, Nvidia also looks poised for similar growth but with less downside risk.
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Jeremy Bowman He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia, Palantir Technologies, and Taiwan Semiconductor Manufacturing. The Motley Fool has Disclosure policy.
