Nvidia (NVDA) and Palantir (PLTR) were two of the hottest AI stocks in 2024, with both posting impressive triple-digit gains. But which one stands out when it comes to the best AI stock for long-term investors? While I’m bullish on both counts, 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 although its growth may slow in the coming years, its valuations are far more justified compared to Palantir’s.

Nvidia and Palantir: A Deep Dive into Their AI Journeys

Before we dive into the bullish points for both companies, it’s important to provide some context. In the AI ​​space, Nvidia has become a market leader as its GPUs support 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 companies make data-driven decisions. While Palantir has traditionally focused on government contracts, the company is increasingly expanding into the commercial sector with its Foundry and AIP platforms, which leverage Palantir’s AI tools to analyze large amounts of data and generate operational insights.

Over the past twelve months, Nvidia’s revenue has increased 152% year over year and has maintained a compound annual growth rate of 67% over the past three years. Looking forward, estimates suggest Nvidia will grow revenue by 111% in fiscal 2025, with the growth rate gradually decreasing to 51%, 20.6%, and 13.8%, respectively, by fiscal 2028.

In contrast, Palantir’s growth has been rather slow. Over the past twelve months, the company’s revenue grew 24.5% year-over-year and over the past three years, it grew 22.7%. Analyst forecasts suggest more consistent growth, with revenue expected to rise 25.5% in 2024 and 24.2% in 2025. Between 2026 and 2028, sales growth is expected to be 21% and 24%, respectively.

Assessing Nvidia and Palantir’s profit margins

Starting with Nvidia: A large part of the company’s bullish outlook, as mentioned, is due to its robust revenue growth, coupled with a strong operating margin of 62.7%, which is pretty impressive. The biggest leverage for Nvidia in this context comes from economies of scale. As demand for its GPUs booms, the company is producing and selling more units, lowering its per-unit production costs. This allows Nvidia to maintain high margins even as production expands.

Looking ahead, Nvidia predicts further profitability improvements, particularly with the launch of its next-generation Blackwell technology. While the initial ramp-up may reduce gross margins slightly, management expects margins to increase again in the second half of the year.

Meanwhile, Palantir, while also worthy of a bullish outlook, trails Nvidia with operating margins of 13.8%. However, Palantir is improving much faster. It is important to note that the company’s operating profit margin has increased dramatically from -120% in 2021 to 13.8% in the last update. Palantir expects further earnings growth as the company continues to do a great job of controlling costs while growing revenue.

Comparing valuations and growth potential

One of the trickiest points in the bullish thesis for both Nvidia and Palantir is their valuations, as both companies trade at very high valuation multiples.

Nvidia is currently trading at a FY2025 P/E ratio of 49x. However, adjusted for growth – taking into account forecasts that the company will continue to grow earnings per share at a CAGR of 35.4% over the next three to five years – Nvidia’s P/E ratio is 1.4x, what a deal Seems entirely appropriate for companies with such strong fundamentals.

On the other hand, Palantir, which reported its first profitable year in 2023, trades at a forward P/E of 184x. Even taking into account the forecast 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 – higher than 4.5x higher than Nvidia’s.

From a revenue perspective, Palantir is currently trading at a price-to-sales ratio of 57x for this year and around 49x for 2025. In terms of cash flow, the company trades at a staggering 159x. In comparison, Nvidia trades at a relatively high price-to-cash flow ratio of 60x, which now looks like a bargain compared to Palantir.

Tracking momentum and stock performance

In conclusion, the final point in the Palantir vs Nvidia comparison is the recent momentum of both stocks, which has been bullish, albeit to different degrees. Over the past three months, Nvidia stock is up 36%, while Palantir stock is up 128% at last check.

The main explanation for this discrepancy likely lies in Nvidia’s last two earnings reports. While these reports were strong and beat expectations across the board, they didn’t have that much of 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 the third quarter of fiscal 2025, were enough to dampen the euphoria.

In contrast, Palantir has consistently exceeded expectations over the past two quarters and significantly outperformed on all metrics. Additionally, the company’s management has repeatedly raised its revenue, operating income and cash flow forecasts, signaling that demand for its AI software services has exceeded expectations. This has created challenges even for the management team in accurately forecasting future results.

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, implying an upside potential of 21.43%.

See more NVDA analyst ratings

Is PLTR a good buy?

On the contrary, the consensus on Palantir is much more cautious. Of the 16 analysts covering the stock, seven 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%.

See more PLTR analyst ratings

Diploma

While I’m bullish on both Nvidia and Palantir, I think Nvidia has the edge for now. Nvidia stands out as the more established company in terms of margins. It still has significant growth potential, is probably somewhere in the middle of its hyper-growth phase, and trades at a much more attractive valuation. For these reasons, I think it’s a better choice for a solid long-term game.

Palantir, on the other hand, certainly deserves a premium given its impressive revenue and profit growth. The demand for the software is so great that even management cannot estimate how far it can go. But despite all the hype and constant upward revisions to forecasts, the stock’s metrics have become downright extreme, making Nvidia look like a bargain in comparison.

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