Better Artificial Intelligence Stock: Palantir vs. Nvidia

The hottest two Artificial Intelligence (AI) The stocks for 2024 are undoubtedly Palantir (NASDAQ: PLTR) and nvidia (NASDAQ: NVDA). However, after announcing big profits last year, both stocks have found themselves well away from the highs, following the recent market pullback.

Let’s take a look at which stocks are the better investment options for investors right now.

Palantir and Nvidia have two very different businesses, both of which were big AI winners.

Nvidia is a semiconductor company Graphics Processing Unit (GPU). The chip is ideal for inferring AI models and therefore has become the backbone of AI infrastructure due to its fast processing speed. The company has created a wide range of moats through the CUDA software platform. This allowed chips to be programmed for a variety of purposes in 2006. Today, it is built on top of this program and has major libraries and services designed for AI, making chips highly desirable.

Palantir, on the other hand, is a software analysis company. Initially, it named itself in the field of government. There, its data collection and analytical functions were used for mission-critical tasks such as fighting terrorism. However, with the advent of AI platforms, it has transformed it into an AI operating system company that can help design and deploy AI solutions for a variety of use cases.

Both companies have seen strong growth. Nvidia’s revenues have more than doubled each of the last two years as large tech companies and AI startups build their AI infrastructure. AI infrastructure spending continues to increase and can be led by Big 3 cloud computing companies. This combined plans to spend a whopping $250 billion on $250 billion in capital expenditures (CAPEX) this year, related to building AI infrastructure. Nvidia predicts that the overall data center-related CAPEX will rise to more than $1 trillion by 2028.

Meanwhile, Palantir is accelerating growth as commercial customers flock to AI platforms and the federal government begins to embrace AI. Overall revenue growth rose 36% in the last quarter, US commercial revenue rose 64%, and US government revenue rose 45%. The number of customers increased by 43% as the company attracts new commercial customers through AI bootcamps.

So far, many of its commercial customers are still in the proof of concept phase. Therefore, Palantir has a great opportunity to move these customer solutions into production and tackle real problems.

When it comes to risk, NVIDIA’s biggest is slowing down AI infrastructure spending. The company’s CUDA software platform is free, so there is no recurring revenue stream. Instead, you will need to sell more and more chips to continue growing.

Although AI infrastructure spending is still rising, there are some concerns that this spending will ultimately slow down. It has been reported MicrosoftNvidia’s biggest customer has pulled back several data center projects as they believe there may be overcapacity and demand in supply. However, TD Cowen’s analysts say that cloud computing rivals are alphabet and Amazon We intervened to fill this capacity.

As long as companies continue to compete to build better AI models, they will need more computing power. This tends to be supplied by the GPU. In fact, there is a tendency to need to train more AI chips exponentially, as models are advanced. For example, both latest models Meta Platform Xai is trained on about 10 times more GPU than previous versions.

Meanwhile, Palantir faces potential risks related to current budget cuts from its biggest client, the US government, accounting for more than 40% of its revenue last year. The company is particularly concerned with the Department of Defense (DOD) and military-related spending. As part of the Department of Government Efficiency (DOGE), the Trump administration has asked DOD to cut by 8% per year over the next five years.

It will significantly reduce DOD budgets and affect many programs. It is still unclear how much it will affect Palantil and its growth opportunities, or how little it will. Palantir CEO Alex Karp has publicly said he supports Doge, suggesting that the company can benefit. However, he and other company insiders have also dumped Palantia stocks. Still, if you can demonstrate that Palantir’s AI platform can help improve efficiency and reduce costs, you could be a Doge winner.

One of the major differences between Nvidia and Palantir stocks is its valuation. At the time of this writing, Nvidia’s stock is very cheap, with stock trading around 24 times the estimated this year by analysts, with a price/revenue to growth (PEG) ratio above 0.4. Inventories with a PEG ratio of less than 1 are usually considered undervalued, and according to this metric, Nvidia becomes a great bargain.

Palantir’s stock is, on the other hand, very expensive. Stocks trade in multiples of sale (P/S) from previous prices of 53. This is more than double the stock price of Software as a Service (SAAS) that traded at a similar growth rate in 2021. With Nvidia stock, you are considering earnings-based valuations, but please note that the differences are pretty big as Palantir stock is considering earnings-based valuations.

Given the recurring revenue model, software companies need to trade at a much higher valuation than semiconductor companies. However, the differences in ratings between the two companies are still very strict. Both companies have potential growth drivers and potential risks. Thus, I prefer Nvidia at the moment. This is a much bigger bargain if AI infrastructure spending continues to increase.

Consider this before purchasing stocks at Palantir Technologies.

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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of the board of directors of Motley Fool. Randi Zuckerberg, a former director of market development, Facebook spokeswoman and sister to Metaplatform CEO Mark Zuckerberg, is a member of Motley Fool’s board of directors. Jeffrey Sayler It has a position in the alphabet. Motley Fools are located and recommend Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Palantir Technologies. Motley Fool recommends the following options: A $395 phone at Microsoft for January 2026 length and a $405 phone to Microsoft for January 2026 short term. To Motley’s fool Disclosure Policy.

Better Artificial Intelligence Stock: Palantir vs. Nvidia Originally published by The Motley Fool