Nvidia (NVDA) and Palantir (PLTR) have been two of the hottest stocks of 2024: Nvidia’s 179.6% year-to-date gain has made it the world’s second most valuable company by market cap , while Palantir’s 153.3% gain has placed it. on the map as a mega-cap tech stock to watch, not to mention a new member of the S&P 500 (SPX).
Both stocks have benefited from being 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 one the more attractive opportunity right now. What looks like the best option for investors right now?
Huge gap in valuation in terms of price-earnings ratio
Nvidia’s rise in 2024 has led it 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 the twice as expensive as the market in general.
However, with earnings per share expected to grow to $4.01 per share for the fiscal year ending January 2026, Nvidia looks considerably 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 projected to grow earnings per share by more than 40% over the year. While Nvidia sometimes draws criticism from value-oriented investors for its above-average price-to-earnings multiple, Palantir is even more expensive.
The massive 153% year-to-date gain has pushed Palantir stock to an incredible valuation of 122.4 times December 2024 earnings estimates. This is more than double Nvidia’s valuation and roughly five times that of the market in general. With the stock expected to grow earnings per share by 19.4% to $0.43 per share by December 2025, the stock’s valuation drops a bit, but it still trades at an exorbitant triple-digit multiple. of 100.8 times future earnings.
Looking beyond the price-to-earnings ratio
Furthermore, it’s not just the price-to-earnings ratio that makes Palantir look significantly more expensive than Nvidia. When the two stocks are analyzed in terms of price-to-sales, a popular metric often used to evaluate high-growth names like technology stocks and software stocks, Palantir trades with an astronomical price-to-sales ratio of 35.3, while Nvidia quotes for high but comparatively cheaper sales of 26.3 times.
What about the PEG ratio?
Finally, it’s worth comparing the two stocks based on their PEG (price-earnings-growth ratios), a popular valuation metric useful for evaluating growth stocks like Nvidia and Palantir taking earnings growth into account. 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 by this measure. Investors and analysts using this metric typically consider a PEG ratio of 1.0 times or less to be undervalued.
So how do Nvidia and Palantir compare on this basis? Nvidia’s 1.8 PEG ratio is a little higher than ideal, but not prohibitive. On the other hand, Palantir is trading with a significantly higher PEG ratio of 10.4, indicating that it is likely overvalued even considering its earnings growth.
Palantir is certainly an interesting company, but a valuation multiple like this is difficult to maintain and leaves little room for error: If the company fails to meet analyst expectations or suffers any headwinds, the stock could fall quickly.
Is NVDA Stock a Buy, According to Analysts?
Turning to Wall Street, NVDA earns a Strong Buy consensus rating based on 39 Buys, three Holds, and zero Sells assigned over the past three months. NVDA stock’s average price target of $152.86 implies 10.7% upside potential from current levels.
See more NVDA analyst ratings
Is PLTR Stock a Buy, According to Analysts?
Turning to Wall Street, PLTR earns a consensus rating of Hold based on four Buy, six Hold, and six Sell ratings assigned over the past three months. The average PLTR stock price target of $27.67 implies a potential downside of 36.2% from current levels.
See more PLTR analyst ratings
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Wall Street analysts are much more constructive on Nvidia, as is TipRanks’ proprietary Smart Score system. Smart Score is a quantitative stock scoring system created by TipRanks. Gives stocks a score from one to 10, based on eight key market factors. Scores of eight, nine, or 10 are considered equivalent to a superior performance rating. Scores of four, five, six, or seven are considered neutral, and scores of three or less are considered equivalent to a low performance rating.
Nvidia has a Smart Score equivalent to 9 for superior performance.
Meanwhile, Palantir receives a much less favorable Neutral Smart Score of 4.
Nvidia is the clear option
NVDA and PLTR are high-flying AI stocks and both are expected to significantly increase their earnings in the coming year. However, Nvidia is expected to grow its profits more than twice as much as Palantir. Despite this, Nvidia stock is trading for a much cheaper valuation multiple. Nvidia is often criticized as an “expensive” stock, but its forward earnings multiple is only a third of Palantir’s double-digit valuation, making it look downright cheap by comparison.
Additionally, sell-side analysts rate Nvidia as a Strong Buy and see upside of 10.7% over the next 12 months, while they are considerably more cautious on Palantir, rating it as a Hold and forecasting a possible drop of 36. 4% from current levels. This disparity in analyst opinions is another strong point in Nvidia’s favor.
I’m bullish on Nvidia due to its significantly cheaper 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 still looks like a smart choice.
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