Nvidia (NVDA) and Palantir (PLTR) were two of the hottest stocks of 2024. Nvidia’s 179.6% gain this year makes it the second most valuable company in the world by market cap, while Palantir’s gain is 153. 3% the second most valuable company in the world. on the map as a mega-cap tech stock to be reckoned with, not to mention a new member of the S&P 500 (SPX).
Both stocks have benefited from their roles as key players in the AI revolution. Both companies have exciting futures ahead of them, but there is a key difference between the two that makes them one of the most attractive opportunities today. What seems like the better choice for investors right now?
Huge gap in valuation based on price-earnings ratio
Nvidia’s rise in 2024 has taken the company to a relatively high valuation multiple of 47.5 times January 2025 earnings estimates. The S&P 500 trades at 24.7 times earnings, meaning Nvidia is almost twice as expensive as the broader market.
But with consensus earnings per share expected to grow to $4.01 per share for the fiscal year ending January 2026, Nvidia is looking a lot more palatable at 33.6 times forward earnings. While this is still quite expensive, it’s starting to look reasonable enough for a mega-cap powerhouse that’s expected to grow earnings per share by over 40% this year. While Nvidia sometimes catches the attention of value-oriented investors due to its above-average price-to-earnings ratio, Palantir is even more expensive.
The massive 153% year-to-date gain has pushed Palantir shares to an incredible valuation of 122.4 times December 2024 earnings estimates. This is more than double Nvidia’s valuation and about five times the broader market. With the stock expected to grow earnings per share by 19.4% to $0.43 per share by December 2025, the stock’s valuation is falling slightly but is still trading at an exorbitant triple-digit multiple of 100.8 times future profit.
Looking beyond price-earnings ratio
Moreover, it’s not just the price-to-earnings ratio that makes Palantir look significantly more expensive than Nvidia. When looking at the two stocks on a price-to-sales basis, a popular metric often used to evaluate fast-growing names like technology stocks and software stocks, Palantir trades at an astronomical price-to-sales ratio of 35.3, while Nvidia trades at an astronomical price-to-sales ratio of 35.3, while Nvidia for a high but relatively cheaper sales of 26.3 times.
What about the PEG ratio?
Finally, it’s worth comparing the two stocks based on their PEG (price-to-earnings-growth ratios), a popular valuation metric useful for evaluating growth stocks like Nvidia and Palantir by taking into account earnings growth . The PEG ratio is calculated by taking a stock’s price-to-earnings ratio and dividing it by its earnings growth rate. The lower the PEG ratio, the better a stock looks according to this measure. Investors and analysts using this measure typically consider a PEG ratio of 1.0x or less to be undervalued.
How do Nvidia and Palantir compare on this basis? Nvidia’s PEG ratio of 1.8 is slightly higher than ideal, but not prohibitively expensive. On the other hand, Palantir trades at a significantly higher PEG ratio of 10.4, which suggests the company is likely overvalued even when accounting for earnings growth.
Palantir is undoubtedly an exciting company, but it’s difficult to sustain a valuation multiple like this, and there’s little room for error. If the company doesn’t meet analyst expectations or hits a speed bump, its shares could plummet quickly.
Is NVDA stock a buy according to analysts?
Looking at Wall Street, NVDA earns a Strong Buy consensus rating based on 39 Buys, three Holds, and zero Sells assigned in the last three months. The average NVDA stock price target of $152.86 implies 10.7% upside potential from current levels.
View more NVDA analyst ratings
Is PLTR Stock a Buy According to Analysts?
As for Wall Street, PLTR earns a consensus rating of Hold based on four Buys, six Holds, and six Sell ratings assigned in the last three months. PLTR stock’s average price target of $27.67 implies 36.2% downside potential from current levels.
View more PLTR analyst ratings
Get smarter
Wall Street analysts are much more constructive on Nvidia, and so is TipRanks’ proprietary Smart Score system. The Smart Score is a quantitative stock scoring system created by TipRanks. It gives stocks a score from one to 10, based on eight key market factors. Scores of eight, nine or 10 are considered equivalent to an Outperform rating. Scores of four, five, six, or seven are considered neutral, and scores of three or lower are considered equivalent to an Underperform rating.
Nvidia has an Outperform-equivalent Smart Score of 9.
Meanwhile, Palantir gets a much less favorable Neutral Smart Score of 4.
Nvidia is the clear choice
NVDA and PLTR are both high-flying AI stocks, and both are expected to grow earnings significantly in the coming year. However, Nvidia is expected to grow profits more than twice as much as Palantir. Despite this, Nvidia stock trades at a much cheaper valuation multiple. Nvidia is often criticized as an “expensive” stock, but its expected earnings numbers are only a third of Palantir’s double-digit valuation, making it look downright cheap by comparison.
Additionally, sell-side analysts rate Nvidia a Strong Buy and see an upside of 10.7% over the next twelve months, while they are significantly more cautious on Palantir, rating it a Hold and a potential downside of 36 .4% from current levels forecast. This disparity in analyst views is another strong point in Nvidia’s favor.
I’m bullish on Nvidia because of its significantly lower valuation and superior earnings growth, making it the clear winner in this comparison of high-profile AI stocks. For investors looking to capitalize on the generative AI wave, Nvidia remains a smart choice.
Revelation
