Both Nvidia (NVDA 1.28%) and Palantir Technologies (PLTR +1.91%) reported staggering Q3 results, featuring the type of growth that keeps the AI (artificial intelligence) narrative alive and well.
But with both stocks delivering incredible returns for investors in 2025, it's a good time to revisit these names. Is one a better pick than the other for 2026 and beyond? I'd say yes. In fact, I think one of the two stocks is a significantly better investment than the other.
Let's take a look.
Image source: Getty Images.
Nvidia: Demand exceeds supply
Not only do both companies possess strong balance sheets and generate substantial free cash flow, but they are also growing their top lines at rates that exceed 60%.
Starting with Nvidia, its fiscal third-quarter revenue rose 62% year over year to $57.0 billion. And its profit growth is even more impressive. Nvidia's net income climbed 65% to $31.9 billion.
Of course, its data center segment once again did most of the work, with revenue up 66% year over year to $51.2 billion.
What's particularly impressive is that, had it not been for supply constraints, the quarter would have been even better. Nvidia CEO Jensen Huang said in the company's third-quarter earnings release that Blackwell sales for the period were "off the charts," and sales of its cloud graphics processing units (GPUs) exceeded supply.
"We've entered the virtuous cycle of AI," explained Huang and the company's third-quarter earnings release. "The AI ecosystem is scaling fast -- with more new foundation model makers, more AI start-ups, across more industries, and in more countries."
Put another way, "AI is going everywhere, doing everything, all at once," Huang said.
NASDAQ: NVDA
Key Data Points
Of course, investors have to pay up to get into this growth story. Nvidia shares trade at a price-to-earnings ratio of 46. However, the stock's forward price-to-earnings ratio of 25 shows that analysts expect massive earnings growth over the next 12 months. So, assuming analysts are in the ballpark of how Nvidia's earnings may trend over the next year, the valuation looks justified.
Palantir: A riskier investment
As an AI software company purposed to help organizations make their data more usable in the era of AI, Palantir's Artificial Intelligence Platform (AIP) is seeing rapid adoption.
Revenue in the company's third quarter rose 63% year over year to about $1.2 billion, with its U.S. commercial revenue being a huge driver. U.S. commercial revenue rose 121% to $397 million in the period.
Even more, the quarter's growth rate marked a significant acceleration over second-quarter growth of 48% -- and that was up from 39% growth in Q1.
What's behind this spectacular acceleration? AI at scale essentially "requires" its AIP platform, explained Palantir chief revenue officer in the company's third-quarter earnings call. "We're seeing that AIP again and again is the only platform delivering transformational impact in this market."
A stretch? Maybe. Still, the company's numbers make it clear that Palantir is at the center of a major transformation.
The issue is valuation. Shares of Palantir trade at more than 400 times earnings and 175 times forward earnings. At a certain point, even a company seeing extraordinary growth can become overvalued. In Palantir's case, the stock deserves to have soared over the last few years, but shares may have simply soared too far, too fast.
NASDAQ: PLTR
Key Data Points
Which AI stock is the better buy for 2026?
If I had to choose one of these two stocks for an investment in 2026, I'd choose Nvidia. And it's an easy choice when viewed next to Palantir.
The choice boils down to valuation.
Both companies are growing at similar rates. Yet one trades at 25 times forward earnings, and the other trades at about 175 times forward earnings. Yes, Palantir's recent acceleration in its top-line growth has been particularly impressive. But Nvidia's business has also seen an acceleration, with fiscal third-quarter revenue growing 62% year over year, compared to 56% growth in fiscal Q2. Even more, its growth has been supply constrained.
My conclusion might be different if Palantir were reporting growth rates far in excess of Nvidia's. But that's not the case. Palantir's valuation has arguably crossed into euphoric territory, making the stock particularly risky.
Of course, there are risks for Nvidia, too. Competition is intensifying, and if the market for AI-capable GPUs matures, sales growth could slow, potentially eroding Nvidia's pricing power and leading to margin compression.
So, even though Nvidia's stock is the better buy for the two, I wouldn't rush to make a meaningful position in the stock at this level. However, an underweight position may make sense. This way, if Nvidia stock falls, investors could fully build out their position then. But if the AI boom exceeds expectations, then investors will at least own some shares of the company at the center of this massive platform shift.
