Better AI Buy Right Now: Nvidia vs Palantir

Nvidia (NASDAQ: NVDA) and Palantir Technologies (NASDAQ: PLTR) both have been early winners of the artificial intelligence (AI) revolution. Last year, their shares soared in the triple digits. Nvidia advanced 171% for the best performance in the Dow Jones Industrial Average, while Palantir surged 340% for the top performance in the S&P 500. And in 2024, those indexes had just invited Nvidia and Palantir to join, a sign that these companies are among the top players driving the economy.

These tech superpowers both have reported record earnings thanks to demand from AI customers, and considering that we're in the early stages of the AI story, with today's $200 billion AI market forecast to grow to more than $1 trillion, a lot more growth could be ahead. And that supports the idea of buying both of these top players. But, if you could buy only one, which one represents the better AI buy right now? Let's find out.

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Image source: Getty Images.

The case for Nvidia

Nvidia is the company most of us think of when we hear the words "artificial intelligence," and this is because it's built an AI empire. The tech giant is the leading seller of graphics processing units (GPUs) -- or the AI chips that power key tasks like the training and inferencing of models -- and beyond this, it offers customers a vast array of AI products and services. So Nvidia has become a one-stop shop for everything AI.

The world's biggest tech players, from Meta Platforms to Microsoft, are among Nvidia's top customers as they need the best tools if they aim to win in the AI space. This is why demand for Nvidia's latest release, its Blackwell architecture, has surpassed supply and the company expects the product to generate several billion dollars in revenue during its first quarter of commercialization -- the quarter that closed in late January.

And speaking of earnings reports, Nvidia has reported double- or triple-digit increases in revenue quarter after quarter and has surpassed analysts' earnings expectations for at least the past four periods. The AI giant is set to announce its latest figures on Feb. 26, representing a catalyst for stock performance just ahead.

The case for Palantir

Palantir is a software company that helps customers aggregate their data and use it to make key decisions, automate workflows, or make other moves that could be game-changing in the near term and over the long term. Years ago, this player was most associated with government contracts, but in more recent times, the commercial customer has emerged as a new growth driver.

Customers particularly like a product Palantir launched in 2023. The company's Artificial Intelligence Platform (AIP) leverages the power of AI, applying large language models to customers' needs, and transforms their use of their own data. For example, a global insurance company is using AIP to automate underwriting workflows -- reducing the time needed for the job to three hours from two weeks. Seeing those efficiency gains, the customer expanded its contract by about $11 million last quarter.

All of this has translated into explosive growth for Palantir. Overall revenue as well as government and commercial separately, each are advancing in the double digits. And Palantir, in its recent earnings report, said it expects U.S. commercial revenue to climb at least 54% this year to more than $1 billion. This ongoing momentum could keep this already high-flying stock soaring.

Should you buy the chip designer or the software player?

Both of these companies clearly have what it takes to continue growing in leaps and bounds. The AI infrastructure buildout still is in its early stages, meaning demand for Nvidia's GPUs should remain high. On top of this, Nvidia, because of its broad range of products, also should benefit throughout the next stage of AI growth as companies apply AI to their businesses.

As for Palantir, this new stage of AI growth could be big. Palantir has the platform to help companies effortlessly use AI to transform their operations, saving time, lowering costs, and eventually even leading to new discoveries. Current commercial customers are realizing this, and that's why many have increased their work with the software company.

So, deciding whether to buy Nvidia or Palantir is a tough choice. But one key element can help us, and that's valuation. Nvidia's has fallen to its lowest in a year from a forward price-to-earnings ratio perspective.

PLTR PE Ratio (Forward) data by YCharts

Nvidia stock is trading for 26 times forward earnings estimates right now, compared with 171 for Palantir. This valuation for Nvidia, a company that has what it takes to generate significant growth over time, looks dirt cheap. And the opportunity to get in on this bargain may not be around for long. That means, even though both of these quality companies are a buy in my book, Nvidia makes the better AI buy right now.

Should you invest $1,000 in Nvidia right now?

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.