This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Artificial intelligence (AI) is the defining technological innovation of our era. In just a few short years, AI is expected to reshape every corner of society.
Semi-autonomous robots may soon handle your laundry, then hop in a self-driving car to pick up groceries. Life is about to get radically different -- ideally, for the better.
At the center of this so-called Fourth Industrial Revolution is Nvidia (NASDAQ: NVDA), the leading supplier of AI chips powering everything from data centers to robotics. Thanks to its central position within the AI value chain, Nvidia's stock has delivered a remarkable 829% return over the past 36 months, turning a $10,000 investment into $92,880.
As incredible as that sounds, Palantir Technologies (NASDAQ: PLTR) has done even better. Over the same 36-month period, Palantir has returned an astonishing 1,744%, transforming that same $10,000 investment into $184,370, nearly double Nvidia's impressive gains.
Both companies are riding the same tidal wave -- but in different lanes. Nvidia builds the computational engine, while Palantir delivers the software layer that interprets the data and enables real-world decisions.
Which of these top innovation stocks is the better buy as a core AI holding?
Latest financial metrics
Nvidia's Q1 fiscal 2026 results (ended April 27, 2025) showcased both massive scale and new headwinds. Revenue hit $44.1 billion, up 69% year over year, with data center revenue specifically climbing 73% to $39.1 billion.
Still, the China situation is deteriorating rapidly. Nvidia lost $2.5 billion in H20 revenue in Q1 and expects to lose $8 billion in Q2 from new export licensing requirements. CEO Jensen Huang lamented that "the $50 billion China market is effectively closed to us," with market share in the country falling from 95% to 50% under these restrictions.
Palantir, meanwhile, is hitting "escape velocity." Q1 2025 revenue of $884 million grew 39% year over year, accelerating from previous quarters. U.S. revenue surged 55% to $628 million, with U.S. commercial revenue exploding 71% to $255 million, surpassing a $1 billion annual run rate for the first time in company history. Palantir also raised full-year 2025 guidance to $3.89 to $3.9 billion, representing projected annual growth of about 36% year over year.
Market opportunity and positioning
The global AI market is projected to surpass $826 billion by 2030, even on conservative estimates. Within this vast opportunity, Nvidia and Palantir Technologies occupy distinct positions along the AI value chain.
Nvidia leads the infrastructure layer, powering the compute backbone of AI. CEO Jensen Huang projects annual data center spending could exceed $1 trillion by 2028.
The company is evolving from a chipmaker into a builder of AI factories, with new partnerships to construct AI supercomputers across the U.S., Saudi Arabia, the UAE, and Taiwan. Its Blackwell Ultra architecture and DGX SuperPOD systems place Nvidia at the forefront of "agentic AI reasoning" -- a key step toward the emergence of autonomous, intelligent systems.
Palantir, by contrast, operates in the application layer, helping enterprises deploy AI across real-world use cases. CEO Alex Karp described the company as being "in the middle of a tectonic shift," as demand for large language models has "turned into a stampede." Unlike many AI companies focused on research or infrastructure, Palantir is already monetizing AI through government contracts and commercial deployments, giving it a practical foothold in the race to bring AI into everyday operations.
The valuation disconnect
Despite commanding massive revenue and leading the AI infrastructure space, Nvidia trades at 46 times trailing earnings, well below its five-year average price-to-earnings ratio (P/E) of 78. Its forward P/E of 30 suggests the market is accounting for China-related export risks and a natural deceleration in growth from its enormous base.
Palantir, by contrast, trades at valuation levels that challenge traditional metrics. The stock has a trailing P/E exceeding 600 and a forward ratio exceeding 230.
These elevated multiples reflect investor belief that Palantir is at a key inflection point. The market appears to be betting on the company's ability to sustain hypergrowth while expanding its margins, a high bar that leaves little room for missteps.
PLTR P/E Ratio data by YCharts.
The verdict
Palantir stock has been a phenomenal performer, but at 600 times earnings, perfection is already priced in. Any execution slip or slowdown in growth could prompt a sharp repricing. While its $3.9 billion revenue run rate is expanding rapidly, it remains relatively small, compared to the multitrillion-dollar AI market.
Nvidia offers a more compelling risk-reward profile. At 46 times earnings, roughly 40% below its recent historical average, the stock combines reasonable valuation with several powerful growth catalysts. The Blackwell product cycle is just beginning, and robotics -- a largely overlooked segment -- could become a significant driver over the next decade.
Palantir remains a compelling long-term growth story, but its current valuation demands flawless near-term execution. In this match-up, Nvidia stands out as the stronger core AI investment.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
