Comparing Tech Stocks: Palantir vs. Reddit

In the past year, many technology stocks have shown significant growth. Two notable examples are Palantir Technologies (PLTR) and Reddit (RDDT).

Palantir's stock has experienced a remarkable increase of over 250% from the previous year as of March 20. Meanwhile, Reddit's stock reached new heights, climbing from a 52-week low of $37.35 in April to an incredible high of $230.41 in February.

However, recent challenges in the U.S. economy and fluctuations caused by Donald Trump's tariffs have impacted stock prices, affecting both Palantir and Reddit. As a result, both companies are currently trading below their 52-week highs from February.

Understanding Palantir's Strengths in AI

Palantir is strategically positioned to take advantage of the booming artificial intelligence (AI) sector. The company has dedicated years to developing digital tools that enable its software to analyze various data relationships. Central to their offering, the AI Platform (AIP), allows organizations to implement AI solutions quickly, often within a few days.

Palantir's software has gained popularity among clients, leading to a surge in sales. By the end of 2024, the company reported revenues of $2.9 billion, reflecting a 29% increase from 2023, which stood at $2.2 billion.

Beyond revenue growth, Palantir has also maintained a profitable operation, achieving a gross margin of 80% in 2024, resulting in a net income of $468 million, up from $217 million in the previous year. Additionally, Palantir has introduced a new product called Warp Speed, aimed at enhancing efficiency in the multitrillion-dollar manufacturing sector by utilizing AIP for managing supply chains and resource planning.

Reddit's Rise as a Social Media Powerhouse

Reddit's shares have surged by 165% in the last year, highlighting the company's strong performance. Despite being nearly two decades old, Reddit has shown impressive user growth, ending 2024 with 101.7 million daily active unique users (DAUq), a 39% year-over-year increase. This DAUq figure represents the count of individuals visiting Reddit at least once in a 24-hour period.

As a social media platform, Reddit thrives on user engagement, serving as a comprehensive online forum where people discuss various topics and interests. The growth in users is crucial, as Reddit’s revenue is primarily driven by advertising. The rise in users translates to enhanced visibility for advertisers, directly impacting the company's revenue positively.

Reddit crossed the $1 billion mark in revenue, finishing 2024 with $1.3 billion in sales, which marked a remarkable 62% growth compared to the $804 million generated in 2023. Additionally, Reddit reported a staggering gross margin of 90.5% in 2024, an improvement from 86.2% in the previous year, resulting in a net income of $71 million compared to $18.5 million in 2023. However, it's important to note that Reddit did sustain a net loss of $484.3 million for the full year due to expenses related to its IPO. Looking forward, with the strong gross margin, Reddit is positioned to sustain profitability moving forward.

Choosing Between Palantir and Reddit

The impressive performances of both Palantir and Reddit in 2024 highlight their growth potential, making the decision on which tech stock to invest in challenging. Both companies are optimistic about continued sales growth into 2025.

Palantir is forecasting Q1 revenue of at least $858 million, which represents a 35% increase from the previous year's $634 million. Similarly, Reddit anticipates sales between $360 million and $370 million for Q1, indicating a minimum 48% rise from $243 million in Q1 of 2024.

Given their robust business strategies and growth metrics, selecting one of these two tech stocks presents a dilemma. To assist in making a choice, we can look at the companies' valuations based on forward price-to-earnings (P/E) ratios. This metric helps determine how much investors are willing to pay for a dollar of earnings based on projected earnings for the next twelve months.

Due to recent market fluctuations, both Palantir and Reddit have seen their forward P/E ratios decrease from February to March. Currently, Reddit has a forward P/E ratio of 36, which is significantly lower than Palantir's 156. This indicates that Reddit presents a better value to investors at this time.

While investing in both stocks is a viable option given their strong management and results, if one must choose only one, Reddit’s favorable valuation signifies it as the more appealing option for investment right now.

stocks, technology, investment