Nvidia and Palantir: Two Tech Giants with Different Growth Prospects

Nvidia and Palantir Technologies have been growth stocks in recent years, with Nvidia reaching a market cap of $4.2 trillion and Palantir at $360 billion. Nvidia's dominance in the AI chip market and high demand for its products make it plausible for the company to hit $5 trillion in market cap. Palantir would need to nearly triple in value to reach $1 trillion, which is a more challenging task. Both stocks have strong growth potential, but Nvidia's higher valuation and strong earnings growth make it more likely to reach $5 trillion first.

Nvidia Corporation (NASDAQ: NVDA) has made history by becoming the first stock to hit a $4 trillion market cap, a testament to its dominance in artificial intelligence (AI) infrastructure. The company's success is driven by its graphics processing units (GPUs) and CUDA software, which have become the backbone of AI data centers [1].

Over the past two years, data center revenue has exploded by more than 9x, from $4.3 billion to $39.1 billion [1]. This rapid expansion has pushed Nvidia past the $4 trillion market cap mark, which is an extraordinary accomplishment. It's only about a 25% gain from here, and the setup remains strong, suggesting a clear path to hit $5 trillion by the end of the year [1].

The company's valuation is still reasonable. While its forward price-to-earnings (P/E) ratio has crept up to 38 times based on this year's analyst estimates, its forward price/earnings-to-growth (PEG) ratio is just more than 0.8, with PEGs below 1 signaling a stock is undervalued [1]. Meanwhile, investors will soon start to turn to 2026 estimates when looking at valuations, and the stock trades at only a 28.5 P/E ratio and less than a 0.8 PEG on next year's analyst consensus.

Nvidia's biggest advantage comes from its CUDA software platform. GPUs were originally designed to speed up graphics rendering in video games. However, Nvidia saw a bigger opportunity and built CUDA as a way to let developers program its chips for other purposes. Although GPU usage for other tasks didn't take off immediately, Nvidia smartly pushed CUDA into universities and research labs, which is where early AI work began. That long-term bet eventually paid off in a big way [1].

Data center demand isn't slowing down. Nvidia's core market remains AI training and inference, and the demand for its chips shows no signs of easing. Companies are spending aggressively to build out large language models, while cloud computing companies and other hyperscalers are racing to scale out their infrastructure. Nvidia, meanwhile, is the company powering this buildout [1].

Nvidia's CEO Jensen Huang has predicted that data center spending tied to AI will exceed $1 trillion by 2028. Not all of that will go to Nvidia, but given its leadership in GPUs, the company is well positioned to take a big piece [1].

The company continues to innovate at a rapid pace, with new architectures set to be introduced every year instead of every two. That should help lock in its lead and keep it ahead of rivals. Even if data center growth slows from here, Nvidia still has more levers to pull. The company's auto business is gaining traction. Last quarter, auto revenue surged 72% to $567 million. That's a fraction of its data center business, but Nvidia expects it to hit $5 billion this year. The ramp-up in the auto sector is coming from robotaxis and smart vehicles. Alphabet's Waymo uses Nvidia chips in its robotaxi fleet, and it's now running more than 250,000 paid rides per week [1]. Nvidia projected in 2022 that its auto opportunity could reach $300 billion. Given the advancements in autonomous driving, that number doesn't look farfetched [1].

Jim Cramer, a prominent financial analyst, has reiterated his "own it, don't trade it" advice for NVIDIA Corporation, highlighting the company's success and potential for future growth [2]. He believes that with the stock already hitting a $4 trillion market cap, a move to $5 trillion is well within reach. That's a solid 25% return from current levels, which would still make the stock a buy. As long as AI infrastructure spending continues to ramp up, Nvidia is a stock you want to own.

References:
[1] https://finance.yahoo.com/news/prediction-nvidia-hit-5-trillion-044500740.html
[2] https://www.ainvest.com/news/nvidia-jim-cramer-predicts-5-trillion-market-cap-means-2507/