NRG Energy vs. Palantir: Which of These Top-Performing S&P 500 Stocks is the Better Buy

Key Points

• NRG Energy's utility makeover and strategic acquisitions fuel 2025 gains yet derivatives risks remain.

• Palantir's AI software boom has delivered stunning profits but carries a sky-high valuation.

• 10 stocks we like better than Palantir Technologies ›

As the S&P 500 moves more cautiously in 2025, two companies have distinguished themselves with impressive gains. Palantir (NASDAQ: PLTR), up over 90% on surging AI adoption, and NRG Energy (NYSE: NRG), up roughly 60% (at the time of writing), now sit atop the index as two of its best performers. Both have delivered blockbuster returns, punched above consensus earnings, and unfurled sails to catch the AI tailwinds. But as we head into the back half of 2025, when markets often test even the hottest stories, which of these high-flyers has more juice in the tank?

Let's pull back the curtain and see.

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NRG Energy: Old-school power, modern makeover

NRG's old-school power plants are firing on all cylinders. In Q1, revenue jumped 15% to $8.6 billion -- well above the 10% rise across the utility sector -- as wholesale power prices spiked and retail margins widened. Net income popped 47% to $750 million, and earnings per share (EPS) jumped 83.6% from $1.46 to $2.68, more than triple utility peer Duke Energy's own 22% gain. That kind of upside doesn't come around often in utilities, as the chart below shows.

All of that growth is certainly impressive. But a closer look at its business model may hint at some hidden risks. As the Wall Street Journal recently pointed out, only about 9 % of NRG's $25 billion in assets sits in actual power plants, while a staggering 21% lives in $5.2 billion of commodity derivatives. That's high, especially when you consider that many members of the Philadelphia Utility Sector Index hold under 1% of their net assets in derivatives . While NRG is likely using them to hedge energy prices, the heavy exposure could lead to a painful loss on the bottom line if price moves exceed the company's hedged positions.

But here's an interesting fact: NRG has recently agreed to buy a portfolio of natural gas generation facilities and a virtual-power-plant platform from LS Power for $12 billion. Once closed, the deal will more than double NRG's hard-asset base, which should dilute its derivatives line with physical plants. It won't erase volatility all at once, but it will help move NRG back toward a classic utility profile.

Looking ahead, NRG's transformative $12 billion acquisition could help it capture surging electricity demands from AI data centers, which explains why management is expecting a 14% compound annual EPS growth rate over the next five years . That kind of growth will also support its dividend, which is currently at 1.15%. With new capacity on the horizon and dividends set to climb, there's real upside if the LS integration runs smoothly.

Inside Palantir's AI cash machine

Like NRG, Palantir is riding the AI wave. But while NRG is selling energy that powers data centers, Palantir is selling powerful software that turns that data into battlefield tactics and boardroom decisions.

In Q1, Palantir cranked total revenue up by 39% to $884 million, powered by a 55% leap in U.S. sales and a 71% explosion in commercial contracts. This marks the highest quarterly revenue growth on record and its strongest Q1 growth in four years. The same momentum delivered a blistering 44% adjusted operating margin -- nearly double the roughly 23% operating margin for the tech sector -- and $370 million in free cash flow.

PLTR data by YCharts

Government work still underpins the base, but enterprise bookings now outpace defense deals, with 139 contracts north of $1 million inked this quarter alone. This shift toward enterprise, which close faster, scale more predictably, and carry more recurring revenue, signals that Palantir is building a more stable, higher-margin business less reliant on the ebb and flow of government spending.

While the headlines for Palantir have been growth, growth, growth, its valuation is a bit sobering. Palantir's stock has a forward price-to-earnings ratio (P/E) exceeding 230, about eight times the tech sector's at 29, making it one of the more richly valued stocks you'll find. The premium baked into that price demands near perfect performance every quarter. Miss one large contract or see a competitor undercut pricing, and the valuation could hit a speed bump.

At the same time, AI's incoming tidal wave could add about $15.7 trillion to the global economy by 2030, more than the combined GDP of China and India. Palantir is already at the epicenter, with management forecasting $3.9 billion in full-year 2025 revenue, a 36% improvement from last year. For long-term investors, the only risk is that today's price already bakes in the expected AI boom, leaving scant room for upside.

So: power or data?

This is really a tough call. But if I had to pick just one, I'd go with NRG. On a price-to-earnings basis, NRG's roughly 20 times forward multiple is only a notch above the S&P 500 Utilities Index's norm of 18 times -- hardly egregious for a utility that's reinventing itself for an AI-powered world. And with the LS Power acquisition in the works, NRG seems primed for durable upside without nail-biting risk.

But don't get me wrong. I love what Palantir has done over the last half decade. But that high valuation – yikes. If you can stomach that valuation, Palantir could still spark fireworks. But if you want more upside, NRG might be the safer charge.

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Steven Porrello has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.