There's no question which artificial intelligence (AI) stock is set to be the biggest winner of 2024. Despite being on track to deliver a gain of more than 180%, it won't be Nvidia (NASDAQ: NVDA). Instead, Palantir Technologies (NASDAQ: PLTR) is poised to take the AI crown with its shares skyrocketing more than 330% this year.
But is Palantir the better pick going forward? I don't think so. Here's why Nvidia is the hands-down better stock to buy than Palantir for 2025.
In different leagues when it comes to growth
Palantir's growth story is a very good one. In the company's third-quarter update, CEO Alexander Karp bragged, "We absolutely eviscerated this quarter, driven by unrelenting AI demand that won't slow down." The AI demand Karp referenced helped Palantir's revenue jump 30% year over year. Adjusted earnings per share soared 43%.
Karp wrote to shareholders in November, "This is still only the beginning." He noted that Palantir's growth "is accelerating." The election of Donald Trump to a second term in the White House has investors excited about the opportunities for the company, which counts the U.S. government as its biggest customer.
What about Nvidia? The GPU maker reported year-over-year revenue growth of 94%, more than three times higher than Palantir's. Nvidia's adjusted earnings per share skyrocketed 103% year over year.
Importantly, those numbers didn't reflect one penny in sales from GPUs based on Nvidia's new Blackwell architecture. CEO Jensen Huang believes Blackwell could become his company's most successful product yet. He even thinks it could be the most successful product ever for the entire computing industry. And Nvidia has more new products on the way each year after Blackwell. I'd argue that Palantir and Nvidia are in different leagues when it comes to growth.
No contest on valuation
Is it possible for a stock to be a better pick than another even if its growth prospects aren't as good? Yes, if the first stock is more attractively valued based on its growth prospects than the second stock. But this isn't the case for Palantir versus Nvidia.
Palantir's shares trade at 161 times forward earnings. The stock's price-to-earnings-to-growth (PEG) ratio based on five-year earnings growth projections is 3.34, according to financial markets infrastructure and data provider LSEG.
Those valuation metrics make Nvidia seem dirt cheap by comparison. Nvidia's forward earnings multiple is 33.4. Its PEG ratio is 0.89. There's simply no contest on valuation between these two stocks: Nvidia is the clear winner.
Wall Street agrees
I'm not the only one who views Nvidia as the clearly better stock to buy than Palantir. Wall Street likes Nvidia more, too.
Of the 19 analysts surveyed by LSEG in December who cover Palantir, only four rated the stock as a "buy" or a "strong buy." Eight analysts recommended holding Palantir. Seven analysts rated the stock as an "underperform" or "sell."
Contrast that bleak picture with Nvidia's. Of the 63 analysts surveyed by LSEG in December who cover the chipmaker, a whopping 59 of them rated the stock as a "buy" or a "strong buy." The remaining analysts recommended holding Nvidia. None thought selling the stock was a good idea.
Nvidia also thrashes Palantir on 12-month price targets. The consensus price target for Nvidia reflects an upside potential of 24%. Meanwhile, the average analysts' price target for Palantir is roughly 47% lower than its current share price.
It's not hard to figure out why Wall Street has such a higher opinion of Nvidia than Palantir. When one stock has stronger growth prospects and a more attractive valuation than another stock, it's going to be the hands-down better pick every single time.
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Keith Speights 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
