Palantir vs. NVIDIA ETFs: Better AI Plays for 2025?

The rise of artificial intelligence (AI) has significantly boosted the stock performance of Palantir Technologies Inc. PLTR this year (up 386.7% YTD). The stock even outperformed the gem of AI — NVIDIA Corporation NVDA (up about 190% YTD) — in 2024.

Retail traders poured almost $30 billion into NVIDIA shares this year on balance, according to Vanda Research, as quoted on CNBC. NVIDIA is now the second-most valuable company in the United States. This makes us wonder which stock is the better AI investment for 2025. Let’s examine the details.

The Bullish Case for Palantir

AI Platform Success

Palantir’s Artificial Intelligence Platform (AIP) has gained widespread adoption, helping businesses integrate large language models into operations. AIP’s scalability and adaptability have helped Palantir secure a significant number of deals worth over $1 million.

Customer and Revenue Growth

In Q3 2024, Palantir’s customer base grew 39% year over year, while transactions over $1 million surged 30%. The company achieved a net-dollar retention rate of 118%, up from 107% a year earlier, indicating its ability to generate additional revenues from existing customers. Along with commercial markets, Palantir has a solid government customer base.

Huge Exposure to Government Sector

Palantir and Anduril, two of the leading U.S. defense technology, are in discussions with around a dozen competitors to establish a consortium aimed at collectively bidding for U.S. government contracts. Consortium is likely to include Elon Musk’s SpaceX, ChatGPT maker OpenAI, autonomous-ship builder Saronic and artificial intelligence data group Scale AI, as quoted on Yahoo Finance.

NVIDIA’s Edge in AI Dominance

GPU Market Leadership:

NVIDIA’s continued dominance in the GPU market is supported by solid demand for its Hopper architecture and the upcoming Blackwell chips. Customers trust NVIDIA’s existing products, with newer chips promising even greater performance. NVIDIA's Blackwell chip is set to dominate in 2025, overshadowing other lingering concerns (like slowing revenue growth), per Morgan Stanley, as quoted on Business Insider.

Cutting-Edge Technology:

The new Blackwell chips, such as the GB200 NVL72, deliver AI inference speeds 30 times faster than the H100. Tech giants like Microsoft, Alphabet, and Oracle have already invested heavily in these chips, indicating strong future demand. Morgan Stanley believes GPU demand will outperform ASIC chips (produced by the likes of Broadcom and Marvel) in 2025, per the above-mentioned source.

Robust Shipment Growth

NVIDIA shipped 13,000 Blackwell chips last quarter, with projections of 300,000 units in Q4 2024 and 800,000 units in Q1 2025. This growing demand positions NVIDIA for sustained profit increases, with a 61.54% year-over-year rise in the Zacks Consensus Estimate for EPS to 84 cents for the quarter ended Q1 2025.

Why NVIDIA is the Better Investment

Valuation Comparison

NVIDIA’s shares are more attractively priced than Palantir’s. NVIDIA trades at 51.45 times trailing 12 month earnings, whereas Palantir trades at a significantly higher multiple of 230.14, making NVIDIA a less-pricey option. NVIDIA’s price-to-cash flow ratio stands at 108.57X versus Palantir’s 843.51X valuation.

Growth Prospect

The 2025 growth rate is expected to be 41.50% for NVIDIA and 23.68% for Palantir. NVIDIA’s return on equity (ROE) stands at 114.8%, far surpassing Palantir’s 9.94%. This reflects NVIDIA’s ability to generate more profits and make efficient use of shareholder capital.

Dividend Advantage

Unlike Palantir, NVIDIA pays dividends, with a payout ratio of 2% and a 5.4% increase over the past five years. This underscores the company’s strong business model and ability to reinvest earnings into research and development.

Are NVIDIA ETFs Better AI Plays?

While both companies are poised for growth in the AI sector, NVIDIA’s established market dominance, and more attractive valuation make it the better investment for 2025. Should companies scale back AI investments, Palantir’s performance could falter, whereas NVIDIA’s market position and pricing power provide greater resilience. Plus, the Blackwell rollout will be an added advantage for NVIDIA in 2025.

However, we cannot completely rule out growing competition and slowing sales growth. Against this backdrop, investors can tap NVIDIA-heavy exchange-traded funds (ETFs) like VanEck Semiconductor ETF SMH, Columbia Semiconductor and Technology ETF SEMI and Strive U.S. Semiconductor ETF SHOC.

Meanwhile, Palantir is a high-growth and momentum stock. Its huge exposure to the government sector is a key winning point in investment rationale. Investors can ride out these positives with PLTR-heavy ETFs like ProShares Big Data Refiners ETF DAT, REX AI Equity Premium Income ETF AIPI and Adaptiv Select ETF ADPV.

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