Nvidia (NASDAQ: NVDA) stock has been a monster winner in recent years as the artificial intelligence (AI) revolution has taken off. Since January 2020, it has surged by around 1,780%! Recently though, another AI stock has been getting lots of attention — Palantir Technologies (NASDAQ: PLTR).
The gains for Palantir have also been explosive — up 1,370% in just two years!
Yet Palantir’s $256bn market cap today is roughly where Nvidia’s was in 2020. This makes Nvidia, now a $2.77trn colossus, about 11 times larger than Palantir.
So, could buying the stock be like investing in Nvidia a few years back? Here’s my take.
Uber-bullish bosses
I see a few similarities between the two tech companies. The most obvious is that both are at the centre of the AI boom, although in different ways. Nvidia provides the essential hardware — the GPUs — that power AI models, while Palantir delivers the software platforms that help organisations harness AI at scale.
To give an analogy, if Nvidia is providing the picks and shovels for the AI gold rush, then Palantir is helping others turn that raw gold into something useful through its Artificial Intelligence Platform (AIP). This is really powering the smaller company’s growth right now.
Beyond this, it’s worth noting that both firms are led by founder-CEOs, with Jensen Huang at Nvidia and Alex Karp at Palantir. They have a way of stirring the imagination when it comes to AI.
For example, in May 2024, Huang declared: “The next industrial revolution has begun…AI will bring significant productivity gains to nearly every industry.”
Meanwhile, back in November, Karp said: “This is the software century, and we intend to take the entire market.”
One is growing faster
On 5 May, Palantir reported revenue of $884m, representing 39% year-on-year growth, and a doubling of net profit ($214m). For the full year, management expects revenue of about $3.9bn (or 35% growth).
Of course, this is impressive. Revenue in its US commercial segment grew by 71% in Q1. This is very encouraging for shareholders because once new customers sign on, they tend to stay locked into Palantir’s powerful, AI-driven software ecosystem for many years.
What about Nvidia? Well, in Q4, the AI chip leader reported revenue of $39.3bn, which was 78% higher than the year before. Meanwhile, net profit surged 80% to $22.1bn.
Therefore, despite being many times larger, Nvidia has actually been growing its top line much faster than Palantir. In Q1, which is set to be reported on 28 May, Nvidia’s revenue is expected to have grown 65% to around $43.1bn.
One is much cheaper
Astonishingly, Palantir stock trades at 87 times sales and 196 times forward earnings. Those respective metrics are 21.5 and 26 for Nvidia, despite it growing faster.
This tells me that Palantir shares look wildly overvalued, and present a lot of risk if the firm’s growth rate suddenly tails off. International commercial revenue actually fell by 5% in Q1, largely due to underperformance in Europe, which Karp said “doesn’t quite get AI”.
The same risk applies to Nvidia too, in relation to spending on AI chips, but the starting point in terms of valuation is much lower.
Unless Palantir’s growth suddenly accelerates, I don’t think buying its stock today would be like investing in Nvidia in 2020.
