Nvidia vs. Palantir: Which Stock Will Make You Richer?
Key Points
Palantir's stock is five times as expensive as Nvidia's based on forward P/E ratios.
Nvidia has a more prominent role in the artificial intelligence (AI) pipeline.
Nvidia's hardware business has a higher barrier to entry than Palantir's software business.
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Despite the bad start to this year, Nvidia (NASDAQ: NVDA) and Palantir (NASDAQ: PLTR) have been some of the market's hottest stocks during this artificial intelligence (AI) boom. Their stocks are up around 530% and 1,640% in the past three years, respectively.
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They're both AI giants, but in different spaces. Nvidia is an AI hardware powerhouse, and Palantir is thriving on the software side. Given their success and leadership in their respective industries, which stock will make you richer?
Image source: The Motley Fool.
It's hard to discuss these two stocks without diving into their valuations. As of market open on March 27, Nvidia's stock was trading at a forward price-to-earnings (P/E) ratio around 20.6 times. Palantir's stock was trading at more than five times that, with a forward P/E ratio of around 109.4.
That alone doesn't make Nvidia the automatic answer, but the huge gap between them is noteworthy. Palantir's stock is priced for near-perfection, so anything short of meeting those expectations could result in huge drops. Volatility is inevitable with both stocks, but Nvidia's valuation makes it less vulnerable.
On the business side, I trust Nvidia's long-term competitive advantage more than Palantir's because its hardware business has a higher barrier to entry and a more commanding role in the AI pipeline. Palantir's business is becoming more diversified, but it still relies a lot on large government contracts, which could be limiting.
If I had to choose one to trust to make more money in the long term, it's Nvidia.
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Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.
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