Nvidia (NVDA) and Palantir (PLTR) have been two of 2024’s hottest shares — Nvidia’s 179.6% year-to-date acquire has made it the second-most precious firm on this planet by market cap, whereas Palantir’s 153.3% acquire has put it on the map as a mega-cap tech inventory to be reckoned with, to not point out a brand new member of the S&P 500 (SPX).
Each shares have benefitted from being key gamers within the AI revolution. Each corporations have thrilling futures forward of them, however there’s a key distinction between the 2 that makes one the extra compelling alternative at this time limit. Which appears to be like like the higher alternative for traders proper now?
Huge Hole in Valuation on a Worth-to-Earnings Foundation
Nvidia’s 2024 surge has taken it to a comparatively excessive valuation a number of of 47.5 occasions January 2025 earnings estimates. The S&P 500 trades at 24.7 occasions earnings, which means that Nvidia is sort of twice as costly because the broader market.
Nonetheless, with consensus earnings per share projected to develop to $4.01 per share for the fiscal 12 months ending in January 2026, Nvidia appears to be like fairly a bit extra palatable at 33.6 occasions ahead earnings. Whereas that is nonetheless pretty costly, it’s beginning to look cheap sufficient for a mega-cap powerhouse projected to develop earnings per share by over 40% for the 12 months. Whereas Nvidia typically catches flack from value-oriented traders for its above-average price-to-earnings a number of, Palantir is much more costly.
The huge 153% YTD acquire has pushed shares of Palantir to an unbelievable valuation of 122.4 occasions December 2024 earnings estimates. That is greater than double Nvidia’s valuation and roughly 5 occasions the broader market. With the inventory anticipated to develop earnings per share by 19.4% to $0.43 per share for December 2025, the inventory’s valuation comes down a bit however continues to be buying and selling at an exorbitant triple-digit a number of of 100.8 occasions ahead earnings.
Wanting Past Worth-to-Earnings
Plus, it’s not simply price-to-earnings that makes Palantir look considerably dearer than Nvidia. When wanting on the two shares on a price-to-sales foundation, a well-liked metric typically used for evaluating high-growth names like expertise shares and software program shares, Palantir trades at an astronomical price-to-sales ratio of 35.3, whereas Nvidia trades for a excessive however comparatively cheaper 26.3 occasions gross sales.
What Concerning the PEG Ratio?
Lastly, it’s price evaluating the 2 shares based mostly on their PEG ratios (price-to-earnings-to-growth ratio), a well-liked valuation metric helpful for evaluating progress shares like Nvidia and Palantir by accounting for earnings progress. PEG ratio is calculated by taking a inventory’s price-to-earnings ratio and dividing it by its earnings progress fee. The decrease the PEG ratio, the higher a inventory appears to be like by this measure. Traders and analysts who make the most of this metric usually view a PEG ratio of 1.0x or much less to be undervalued.
So, how do Nvidia and Palantir stack up on this foundation? Nvidia’s PEG ratio of 1.8 is a bit increased than ideally suited however not prohibitive. Alternatively, Palantir trades at a considerably increased PEG ratio of 10.4, indicating that it’s seemingly overvalued even when accounting for its earnings progress.
Palantir is little doubt an thrilling firm, but it surely’s arduous to maintain a valuation a number of like this, and it leaves little room for error — if the corporate falls wanting analyst expectations or hits any pace bumps, shares may tumble shortly.
Is NVDA Inventory a Purchase, In line with Analysts?
Turning to Wall Road, NVDA earns a Sturdy Purchase consensus score based mostly on 39 Buys, three Holds, and 0 Sells assigned prior to now three months. The common NVDA inventory worth goal of $152.86 implies 10.7% upside potential from present ranges.
See extra NVDA analyst scores
Is PLTR Inventory a Purchase, In line with Analysts?
Turning to Wall Road, PLTR earns a Maintain consensus score based mostly on 4 Buys, six Holds, and 6 Promote scores assigned prior to now three months. The common PLTR inventory worth goal of $27.67 implies 36.2% draw back potential from present ranges.
See extra PLTR analyst scores
Smarten Up
Wall Road analysts are way more constructive on Nvidia, and so is TipRanks’ proprietary Good Rating system. The Good Rating is a quantitative inventory scoring system created by TipRanks. It offers shares a rating from one to 10, based mostly on eight key market components. Scores of eight, 9, or 10 are thought-about equal to an Outperform score. Scores of 4, 5, six, or seven are thought-about Impartial, and scores of three or under are thought-about equal to an Underperform score.
Nvidia boasts an Outperform-equivalent Good Rating of 9.
In the meantime, Palantir receives a far much less favorable Impartial Good Rating of 4.
Nvidia Is the Clear Selection
NVDA and PLTR are each high-flying AI shares, and each are projected to develop earnings considerably within the 12 months forward. Nonetheless, Nvidia is projected to develop earnings greater than twice as a lot as Palantir. Regardless of this, Nvidia shares commerce for a far cheaper valuation a number of. Nvidia is commonly criticized as an ‘costly’ inventory, however its ahead earnings a number of is only a third of Palantir’s double-digit valuation, making it look downright low-cost as compared.
Plus, sell-side analysts fee Nvidia a Sturdy Purchase and see an upside of 10.7% over the following 12 months, whereas they’re significantly extra cautious in the direction of Palantir, score it a Maintain and forecasting a possible draw back of 36.4% from present ranges. This disparity in analyst views is one other robust level in favor of Nvidia.
I’m bullish on Nvidia based mostly on its considerably cheaper valuation and superior earnings progress, making it the clear-cut winner on this comparability of high-profile AI shares. For traders trying to capitalize on the generative AI wave, Nvidia continues to seem like a wise alternative.
Disclosure
