AI Stock Sell-Off: Should You Buy Palantir or Nvidia Stock on the Dip?

In recent weeks, the market has seen significant sell-offs in two of its most prominent artificial intelligence (AI) stocks. Currently, Nvidia (NASDAQ: NVDA) is down 25%, while Palantir Technologies (NASDAQ: PLTR) has seen a more substantial decline of 32% from their all-time highs.

This situation raises an important question: are either of these stocks worth considering for purchase during this dip? A deeper look into each company's performance and future prospects may reveal surprising insights regarding which stock stands out as a better investment right now.

Strong Positions in the AI Market

First, let's break down the businesses of each company.

Nvidia is a leader in the production of graphics processing units (GPUs) and the necessary infrastructure for their operational use. These GPUs are essential components in AI technology, and Nvidia holds a commanding position in this segment of the market.

The recent AI advancements have largely been powered by Nvidia's Hopper architecture, specifically models like the H100 and H200 GPUs. The company is also enhancing production of its new Blackwell architecture, which promises even more powerful GPUs, thus acting as a significant growth driver for the future.

Palantir, on the other hand, specializes in AI-driven data analysis software. Their core offering can be summed up as a process of taking data input and generating actionable insights. While this concept sounds straightforward, it has enabled Palantir to build a substantial business servicing both government and commercial clients worldwide.

A key product contributing to Palantir's growth is its AIP (Artificial Intelligence Platform), which allows companies to integrate AI into their operations. This platform aids businesses in automating processes and implementing AI models into daily tasks performed by employees.

Comparing Financials and Valuations

Both companies offer compelling narratives, but we need to analyze their financials to determine which stock is the more attractive buy.

When comparing the scale of the two companies, Nvidia places far ahead of Palantir in terms of revenue. Over the last 12 months, Nvidia generated $130 billion in revenue, while Palantir brought in $2.87 billion.

While Nvidia's larger revenue doesn’t automatically make it the better investment, it does highlight the disparity in company sizes and market share.

Moreover, Nvidia is projected to grow much faster than Palantir over the coming years. For its fiscal year 2026, ending in January 2026, analysts anticipate Nvidia's revenue could reach $204 billion, reflecting a remarkable 56% growth rate. In contrast, analysts predict a 32% increase for Palantir, estimating that its revenue will reach $3.79 billion by 2025. This discrepancy lends an advantage to Nvidia in terms of growth projections.

Turning to their valuations, Nvidia again comes out ahead. Currently, Nvidia trades at a reasonable 25 times its forward earnings, a valuation that seems attractive given the vast market potential for AI hardware. In contrast, Palantir's stock is valued at a significantly higher 144 times its forward earnings. Some may argue that this discrepancy is due to Nvidia's more mature status compared to Palantir.

To provide more clarity, let's consider some favorable projections for Palantir. If we assume the following:

1. Palantir's revenue growth accelerates to 35% and remains steady for the next seven years.
2. The profit margin improves to 30%, a benchmark seen in top-tier software companies.
3. The impact of an increasing share count is disregarded.

Under these conditions, Palantir could potentially generate $23.4 billion in revenue and $7 billion in profits after seven years. Despite this impressive growth, it would still result in a forward valuation of 27 times earnings, which surpasses Nvidia's current valuation.

This analysis leads to a clear conclusion: investing in Nvidia appears to be the wiser choice. The significant assumptions underpinning Palantir's stock price make its current valuation questionable when compared to a robust growth company like Nvidia.

AI, Stocks, Investing