Best Artificial Intelligence (AI) Stock to Buy Now: Nvidia or Palantir?

Key Points

• Palantir's software model is more sustainable than Nvidia's hardware sales.

• Nvidia is growing far quicker than Palantir.

• Nvidia's stock looks dirt cheap compared to Palantir's.

• 10 stocks we like better than Nvidia ›

Artificial intelligence (AI) investing is a remarkably broad field, as there are numerous ways to profit from this trend. Two of the most popular are Nvidia (NASDAQ: NVDA) and Palantir (NASDAQ: PLTR), which represent two different sides of AI investing.

Nvidia is on the hardware side, while Palantir produces AI software. These are two lucrative fields to invest in, but is there a clear-cut winner? Let's find out.

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Image source: Getty Images.

Palantir's business model is more sustainable

Nvidia manufactures graphics processing units (GPUs), which have become the preferred computing hardware for processing AI workloads. While Nvidia has made a ton of money selling GPUs, it's not done yet. Nvidia expects the big four AI hyperscalers to spend around $600 billion in data center capital expenditures this year, but projects that global data center capital expenditures will increase to $3 trillion to $4 trillion by 2030. That's a major spending boom, and Nvidia will reap a substantial amount of money from that rise.

However, Nvidia isn't completely safe. Its GPUs could fall out of style with AI hyperscalers as they develop in-house AI processing chips that could steal some of Nvidia's market share. Furthermore, if demand for computing equipment diminishes, Nvidia's revenue streams could fall. That's why a subscription model like Palantir is a better business over the long term.

Palantir develops AI software that can be described as "data in, insights out." By using AI to process a ton of information rapidly, Palantir can provide real-time insights for what those with decision-making authority should do. Furthermore, it also gives developers the power to deploy AI agents, which can act autonomously within a business.

Palantir sells its software to commercial clients and government entities, and has gathered a sizable customer base, although that figure is rapidly expanding. As the AI boom continues, these customers will likely stick with Palantir because it's incredibly difficult to move away from the software once it has been deployed. This means that after the AI spending boom is complete, Palantir will still be able to generate continuous revenue from its software subscriptions.

This gives Palantir a business advantage.

Nvidia is growing faster

Although Palantir's revenue growth is accelerating, it's still slower than Nvidia's.

NVDA Revenue (Quarterly YoY Growth) data by YCharts

This may invert sometime in the near future, but for now, Nvidia has the growth edge.

One item that could reaccelerate Nvidia's growth is the return of its business in China. Nvidia is currently working on obtaining its export license for H20 chips. Once that is returned, the company could see a massive demand from another country that requires significant AI computing power. Even without a massive chunk of sales, Nvidia is still growing faster than Palantir, giving it the advantage here.

Nvidia is far cheaper than Palantir

With both companies growing at a similar rate, it would be logical to expect that they should trade within a similar valuation range. However, that's not the case. Whether you analyze the stocks from a forward price-to-earnings (P/E) or price-to-sales (P/S) basis, Palantir's stock is unbelievably expensive.

NVDA PE Ratio (Forward) data by YCharts

From a P/S basis, Palantir is about 5 times more expensive than Nvidia. From a forward P/E basis, it's about 6.5 times more expensive.

With these two growing at the same rate, this massive premium for Palantir's stock doesn't make a ton of sense. It will take years, or even a decade, at Palantir's growth rate to bring its valuation down to a reasonable level; yet, Nvidia is already trading at that price point.

I think this gives Nvidia an unassailable advantage for investors, and I think it's the far better buy right now, primarily due to valuation, as Palantir's price has gotten out of control.

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Keithen Drury has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.