With the advent of artificial intelligence (AI), shares of Palantir Technologies Inc. PLTR and NVIDIA Corporation NVDA have witnessed parabolic gains, making them popular investments on Wall Street. This year, Palantir’s shares have outperformed NVIDIA (+324.8% vs +177.2%).
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However, does this mean Palantir is a better buy than NVIDIA for the new year? Let’s see –
The Artificial Intelligence Platform (AIP) that Palantir has introduced has gained immense popularity. It aids businesses in integrating large language models into their operations, which increases the company’s profitability.
The AIP platform is expected to help Palantir expand and acquire new customers. Palantir’s new customer base swelled 39% in the third quarter of 2024 on a year-over-year basis. In the last quarter, transactions above $1 million surged by 30%, leading to an increase in deal size.
Palantir reported strong revenues and earnings in the third quarter, driven by the AIP momentum. The company was also able to generate business from its existing customers since the third-quarter net-dollar retention rate of 118% surpassed the 107% rate from a year ago.
The future, meanwhile, looks promising for Palantir as its remaining deal value of $4.5 billion surged 22% year over year in the previous quarter. Thus, Palantir expects 2024 revenues to reach $2.8 billion, a 25% jump from 2023’s $2.23 billion. As a result, the $0.38 Zacks Consensus Estimate for PLTR’s earnings per share is up 31% from a year ago.
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NVIDIA’s sheer dominance in the graphic processing units or GPU market will drive its stock price in the near term. CEO Jensen Huang confirmed that demand for its Hopper architecture remains solid despite the highly anticipated launch of next-generation Blackwell chips.
This means customers continue to have faith in NVIDIA’s older chips, and the new ones, as its products remain superior to rivals Advanced Micro Devices, Inc. AMD and Intel Corporation INTC.
The demand for cutting-edge Blackwell chips has skyrocketed, and once they are launched, NVIDIA’s shares are expected to increase. This is because the Blackwell chips can process high volumes of data more efficiently.
For instance, the GB200 NVL72 system in Blackwell outstrips H100 by running AI inference 30 times faster. For this reason, Microsoft Corporation MSFT, Alphabet Inc. GOOGL and Oracle Corporation ORCL, to name a few, have become buyers of Blackwell chips.
NVIDIA has already shipped 13,000 Blackwell chips in the last reported quarter, while Morgan Stanley (MS) expects the company to ship a whopping 300,000 units in the final three months of 2024 and 800,000 units in the first three months of next year.
Thanks to the growing demand for Blackwell chips, NVIDIA is expected to maintain a healthy increase in quarterly profits despite seeing some staggering success over the past year. As a result, the $2.93 Zacks Consensus Estimate for NVDA’s earnings per share is up 47.2% from a year ago.
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NVIDIA’s new AI chips should push its stock to new highs in 2025, while Palantir’s enhanced AI solutions could propel its share price. However, NVIDIA is still a better stock, hands down, than Palantir for next year.
After all, if companies reduce AI investments due to unprofitable projects, Palantir may face challenges. On the other hand, NVIDIA’s dominant position in the AI market gives the semiconductor giant greater pricing power and the potential to earn more.
NVIDIA, anyhow, has been able to generate profits more consistently than Palantir. This is because NVIDIA’s return on equity (ROE) is 120.4%, while Palantir’s ROE is 21%.
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Meanwhile, unlike Palantir, NVIDIA has a sturdy business model since it pays dividends. The company’s dividend payout ratio sits at 2% of earnings and the payout has increased by 5.4% in the past five years, a tell-tale sign that the company is capable of reinvesting a major portion of its earnings into R&D.
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At the same time, buying NVIDIA’s shares is more cost-effective than buying Palantir’s, giving NVIDIA an investment advantage. Per the price/earnings ratio, NVDA trades at 46.8X forward earnings. In comparison, the PLTR’s forward earnings multiple is 190.7.
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