Palantir vs. Nvidia: Analyzing AI Stock Potential

In 2024, shares of both Palantir Technologies (NASDAQ: PLTR) and Nvidia (NASDAQ: NVDA) have experienced remarkable gains, largely driven by the rising demand for artificial intelligence (AI) hardware and software. Notably, Palantir's stock has seen a significant increase of 345%, while Nvidia's shares have risen by 188%. With these figures in mind, one may wonder whether Palantir is the better choice for investors looking at AI stocks.

The Advantages of Palantir Technologies

While Nvidia is widely recognized as a major supplier of chips necessary for training AI models, it is Palantir that plays a crucial role in implementing these models in real-world applications for both enterprises and governments. A key factor in Palantir's recent success is its Artificial Intelligence Platform (AIP), which enables companies to incorporate large language models (LLMs) and generative AI into their workflows. This capability has led to significant growth in Palantir's business and revenue streams.

For example, Palantir's revenue for the third quarter of 2024 reached $726 million, reflecting a 30% increase compared to the same quarter the previous year. In contrast, the company only managed a 17% growth in revenue during 2023. This accelerating growth was highlighted by Palantir's management during their November earnings call, stressing that they continue to see positive momentum prompted by their AIP.

Moreover, Palantir's customer base has expanded by 39% year-over-year. The size of deals has also increased, with 104 transactions exceeding $1 million—up 30% year-over-year. Notably, the company shows that it is not only attracting new clients but also enhancing relationships with existing customers, as evidenced by a net-dollar retention rate of 118% in Q3. This metric indicates that existing customers are increasingly utilizing Palantir's platform more extensively than before.

Palantir also has a strong revenue pipeline reflected by its remaining deal value (RDV) of $4.5 billion, which showed a 22% year-over-year increase in the last quarter. This bodes well for Palantir's potential to sustain impressive growth in the future. Consequently, the company has raised its full-year revenue guidance, anticipating revenues just above $2.8 billion in 2024, a 25% increase from the $2.23 billion recorded in 2023. Projections for the following years have also been upgraded.

As shown in forecasts, Palantir expects to achieve sustained growth above 20% over the upcoming years, supported by the fast-expanding market for AI software platforms, projected to grow at an annual rate near 41% until 2028. Thus, Palantir remains a strong contender as an AI stock that could offer long-term value.

The Case for Nvidia

Although Nvidia's stock returns this year may seem less impressive than Palantir's, it is essential to recognize Nvidia's pivotal role in advancing AI technology. Currently, Nvidia holds an impressive market share of over 85% in the sector for AI data center graphics processing units (GPUs), which contributes to its consistent quarterly growth.

Given its dominance in AI GPUs, Nvidia faces minimal competition, with rivals struggling to capture market share. The recent launch of Nvidia's Blackwell graphics cards has sold out entirely for the upcoming year, though the company is proactively working to increase supply.

Fiscal 2025 looks promising for Nvidia, with revenue expected to soar by an astonishing 112% to reach $129 billion, indicating a robust growth forecast for upcoming years.

Additionally, Nvidia presents a compelling investment opportunity not just due to its growth pattern over the past years, but also because of the booming demand for AI chips and software. Advancements in digital twins, a shift towards accelerated computing, and increased use of chips in vehicles contribute to Nvidia's market potential, estimated at a staggering $1.7 trillion.

It is noteworthy that Nvidia might also encroach on Palantir's territory in the enterprise AI software domain. Nvidia's CFO Colette Kress noted during the latest earnings call that they expect revenue from Nvidia AI Enterprise to double from last year's figures, and their software, services, and support revenue is expected to annualize at over $2 billion.

The Conclusion

Nvidia is projected to outpace Palantir in growth, even as a larger entity. Current valuations show that Nvidia is a more favorable investment considering its superior growth rate. The financial outlook is striking, highlighting that Palantir's median price target of $38 suggests a potential 50% decline from current prices, while Nvidia's target of $175 indicates a 23% potential increase.

Nvidia addresses a wider total addressable market, thanks to its successful expansion in AI software and its dominance in hardware. Hence, Nvidia appears to be the more attractive AI stock choice for both immediate opportunities and long-term investment.

AI, Stocks, Growth