Palantir vs. Nvidia: The Better AI Investment

The artificial intelligence (AI) industry is witnessing explosive growth, making it a lucrative area for investors. Forecasts predict the AI market will expand from $244 billion in 2025 to $1 trillion by 2031. Two leading stocks in this sector are Palantir Technologies (PLTR) and Nvidia (NVDA).

Palantir shares have surged over 400% in the past 12 months, while Nvidia's stock has rebounded from a 52-week low of $86.62 in April to near its January peak of $153.13. Both companies offer compelling reasons to invest, but which is the better AI stock for the long run? Let's delve into the details.

The Case for Palantir Stock

Palantir is a compelling investment due to the success of its Artificial Intelligence Platform (AIP). Since its launch in 2023, the company's business has experienced significant growth. In the first quarter, revenue increased by 39% year-over-year to $883.9 million. Ryan Taylor, Palantir's chief revenue and legal officer, remarked, "Unrelenting demand for AIP continues to drive outperformance despite Q1 historically being our slowest quarter due to business seasonality."

This strong start to 2025 led the company to raise its full-year sales guidance from $3.7 billion to $3.9 billion, representing a substantial increase from 2024's $2.9 billion. Palantir is also expanding its revenue opportunities with new AI products like Warp Speed, which uses AI to enhance U.S. manufacturing efficiencies.

Palantir's financial performance is equally impressive. In Q1, net income reached $217.7 million, more than double the $106.1 million reported in 2024. The company's free cash flow (FCF) of $370.4 million marked a 42% year-over-year increase.

Reasons to Consider Nvidia Stock

Nvidia's leadership in semiconductor chips for AI is another strong investment case. The company's market share in this area exceeds 70%. In fiscal Q1, sales grew by 69% year-over-year to $44.1 billion. Nvidia's latest AI computing architecture, Blackwell, and its successor, Vera Rubin, are designed for the age of AI reasoning, enabling more human-like decision-making by AI systems.

Nvidia's hardware is complemented by its software, the Compute Unified Device Architecture (CUDA), which is essential for customizing Nvidia's hardware when building AI systems. This software ecosystem increases switching costs, making it harder for customers to switch to competitors.

Nvidia's financials are robust, with fiscal Q1 net income rising 26% year-over-year to $18.8 billion, and FCF hitting $26.1 billion, a 75% increase from the prior year's $14.9 billion. Despite U.S. government restrictions on selling AI components to China, Nvidia is working to revise its hardware specs to gain approval for sales into the Chinese market.

Deciding Between Palantir and Nvidia

Both Palantir and Nvidia are strong businesses, but stock valuation can help in making the decision. Nvidia's price-to-earnings (P/E) ratio is significantly lower than Palantir's, indicating that Nvidia is the better value. Palantir's P/E ratio has climbed higher in recent months, suggesting the stock is overpriced.

Beyond valuation, Nvidia's established leadership in AI and its ongoing efforts to evolve its technology position the company for sustained success. CEO Jensen Huang noted, "Countries around the world are recognizing AI as essential infrastructure, and Nvidia stands at the center of this profound transformation."

In conclusion, while both companies are strong, Nvidia's lower P/E ratio and established leadership in AI make it the superior investment over Palantir for the long term.