Palantir Stock vs. Nvidia Stock: Billionaires Buy One and Sell the Other

Palantir Technologies (PLTR 1.56%) shares have soared by 285% this year, while Nvidia (NVDA 2.15%) shares have advanced by 175%. Both companies play important roles in the burgeoning artificial intelligence (AI) economy, but several billionaire fund managers sold some of their Palantir stakes and bought more shares of Nvidia during the third quarter.

• Cliff Asness of AQR Capital Management sold 99,140 shares of Palantir, cutting his position by 16%. Meanwhile, he added 719,710 shares of Nvidia, upping his position by 5%. Nvidia is now the largest position in AQR's portfolio.
• Ken Griffin of Citadel sold 5.1 million shares of Palantir, reducing his stake by 91%. Meanwhile, he bought 4.7 million shares of Nvidia, increasing his stake by 194%. Nvidia is the second largest position in Citadel's portfolio, excluding options contracts and index funds.
  
• Steven Schonfeld of Schonfeld Strategic Advisors sold 60,384 shares of Palantir, closing his position in it completely. Meanwhile, he added 703,192 shares of Nvidia, increasing his stake by 217%. Nvidia is the largest holding in Schonfeld's portfolio, excluding index funds.
  

Palantir Technologies: The stock some billionaires were selling

Palantir provides data analytics software. Its core Gotham and Foundry platforms integrate information and machine learning (ML) models into an ontology -- a digital layer that defines the relationships between real-world objects. Using prebuilt and custom analytics tools, businesses can query the ontology layer to surface insights that improve decision-making.

Palantir also has an artificial intelligence platform called AIP, which brings generative AI support to its core products, letting users engage with that software using natural language. For instance, procurement teams managing supply chains with Foundry can simply ask the platform to review problems and propose solutions as they arise.

While many vendors sell AI and analytics tools, Palantir believes it is unique in its ability to operationalize AI. In other words, Palantir says its software lets clients move prototype use cases to production more effectively than other solutions. There may be a bit of posturing in that belief, but analysts have recognized Palantir as a leader in AI/ML platforms.

Palantir reported excellent financial results in the third quarter, beating estimates on the top and bottom lines. Revenue increased 30% to $725 million, and non-GAAP net income surged 43% to $0.10 per diluted share. Management attributed its strong performance to momentum with AIP.

"Our unchallenged ability to channel and guide the demand for integrating AI seamlessly with essential data, distribution, and decision-making structures is what truly sets us apart," CEO Alex Karp wrote in his letter to shareholders. That confidence is undoubtedly encouraging for Palantir shareholders, but the company's valuation has become a significant problem.

Wall Street expects Palantir to grow its adjusted earnings at an annualized rate of 27% through 2025. That makes the current valuation of 188 times earnings look absurdly expensive. Those figures give it a price/earnings-to-growth (PEG) ratio of 7, and conventional wisdom says anything trading at a PEG above 2 is expensive. Prospective investors should avoid this stock for the time being, and current shareholders should consider trimming large positions.

Nvidia: The stock some billionaires were buying

Dan Ives at Wedbush Securities says Nvidia is the "foundation of the AI revolution." The company designs the most coveted graphics processing units (GPUs) in the computing industry. Nvidia accounted for 98% of data center GPU shipments in the last two years, and it has about 80% market share in AI accelerator chips. That leadership is reinforced by CUDA, a robust ecosystem of software development tools.

An article in The Wall Street Journal recently explained how CUDA contributed to the rise of Nvidia: "Year after year, Nvidia responded to the needs of software developers by pumping out specialized libraries of code, allowing a huge array of tasks to be performed on its GPUs at speeds that were impossible with conventional, general-purpose processors like those made by Intel and AMD," wrote that newspaper's Christopher Mims.

Nvidia reported excellent financial results in the third quarter, beating estimates on the top and bottom lines. Revenue rose 94% to $35 billion, and non-GAAP net income jumped 103% to $0.81 per diluted share. Investors have good reason to think that momentum will continue. Nvidia is currently ramping up production of its next-generation Blackwell GPUs, and CFO Colette Kress recently told analysts, "Demand is staggering."

Looking ahead, Wall Street expects Nvidia's adjusted earnings to increase at an annualized rate of 52% through its fiscal 2026, which ends in January 2026. That consensus makes the current valuation of 52 times adjusted earnings look quite reasonable. Those figures give a PEG ratio of 1, which makes Nvidia far cheaper than Palantir. Patient investors should be comfortable buying a position in this stock today.