Two of the biggest artificial intelligence (AI) winners in recent years have been Nvidia (NVDA +1.67%) and Palantir Technologies (PLTR +2.54%). Given how much growth both stocks have already registered, investors may be wondering which stock has the most additional upside from here. The quick answer to that question is Palantir, largely based on it being a much smaller company.
Both stocks have solid upside potential, so let's look at what they each bring to the table.
Image source: Getty Images.
Nvidia
Nvidia has become the best way to play AI infrastructure, and with good reason. The company's graphics processing units (GPUs) are the backbone of the data center AI build-out, and the numbers tell the story. Last quarter, Nvidia's data center revenue hit $39.1 billion, up more than ninefold from $4.3 billion in quarterly revenue just two years ago. That kind of growth at such a huge scale is unheard of, and it's a direct result of Nvidia's dominance in the space.
What sets Nvidia apart isn't just its chips; it's its CUDA software platform that creates the moat. GPUs were originally developed to help speed up graphics rendering in video games, and Nvidia created CUDA as a way to let developers program its chips for other tasks.
While it took a long time for GPUs to gain significant traction outside of video games, Nvidia made the smart decision of pushing CUDA into research labs and universities early on. This ensured that developers learned to program GPUs on its software, and it was also where early AI development began. In the years since, Nvidia has built out a full stack of tools and libraries on top of CUDA that can help speed up development and improve the performance of its chips. The result? A 92% market share in GPUs in Q1.
NASDAQ: NVDA
Key Data Points
Nvidia isn't resting on that lead. It's sped up the development cycle of its chips from releases once every two years or so to new releases once a year to help ensure it keeps its market lead. The company is also pushing into other high-growth areas like autonomous driving. Last quarter, automotive revenue jumped 72% year over year to $567 million, and Nvidia expects that to hit $5 billion this year.
Nonetheless, the company is now closing in on a $4 trillion market cap, and the law of large numbers does come into play. As great as Nvidia is, percentage gains from here may not be as dramatic as they've been in the past. It's still a solid stock to own for the long haul, but the days of doubling or tripling its share price in a year may be over.
Palantir Technologies
While Nvidia is the dominant AI player on the hardware side, Palantir is looking to become the top dog on the software side. The company has taken a very different path than most with AI, and that's what makes it so compelling. Rather than competing to build the best AI model, it has built the orchestration layer that puts those models to work in real-world operations. The company's Artificial Intelligence Platform (AIP) is already being used across industries to run everything from hospital risk monitoring to underwriting for insurers. Recently, it introduced new AI agents that not only suggest actions but can execute the actions as well.
Palantir just posted its seventh straight quarter of accelerating revenue growth, with total revenue up 39% year over year. U.S. commercial sales jumped 71%, and future deal value surged 127%. That shows AIP is more than just hype, and it is seeing strong momentum. The company's government business remains strong as well, with U.S. government revenue up 45%. And with a recent NATO win, international defense could become a third growth pillar.
NASDAQ: PLTR
Key Data Points
While the stock trades at a sky-high price-to-sales (P/S) multiple, the company is uniquely positioned in the AI space. Customers are quickly moving from prototypes to full-scale rollouts, and multiyear deals are stacking up. The use cases span nearly every major sector, including healthcare, energy, finance, and defense, which gives Palantir a massive long-term runway. AIP is becoming the AI operating system for enterprises, and companies that control operating systems -- think Microsoft, Apple, Alphabet -- tend to grow into giants.
The valuation is rich, no question, but if Palantir can consistently grow its revenue around a 40% clip, it could grow into its multiple over time. With that kind of growth, $30 billion in revenue within the next six years isn't unthinkable. That would make today's P/S look reasonable in hindsight.
Conclusion
Both companies are leaders in their respective corners of the AI ecosystem. Nvidia is the leader in AI infrastructure, and Palantir is building the layer that puts it to work. Nvidia is a solid long-term holding, but Palantir has more upside, especially if AIP becomes the default AI operating system.
