Nvidia (NVDA 1.92%) and Palantir Technologies (PLTR 5.53%) delivered terrific gains last year as shares of both companies shot up remarkably thanks to the fast-growing demand for their artificial intelligence (AI)-focused hardware and software solutions. But 2025 is turning out to be different for these red-hot growth stocks.

While Nvidia stock has retreated nearly 14% in 2025, Palantir has lost a lot of ground in recent days after a solid start to the year. However, it cannot be denied that both companies are on track to benefit from lucrative end markets. While Nvidia's recent results suggest that the fast-growing demand for AI hardware continues to be a key growth driver for the company, Palantir continues to witness an improvement in its growth profile thanks to the expanding need for generative AI software.

However, if you had to buy one of these two AI stocks right now, which one should you be putting your money on? Let's find out.

The case for Nvidia

The market has been doubting Nvidia's ability to sustain its healthy growth thanks to a variety of reasons ranging from export controls on its AI graphics processing units (GPUs) to a potential slowdown in AI infrastructure spending to threats from other types of chips such as custom processors that are being adopted by tech giants in a bid to lower their AI expenses.

However, the company's latest quarterly results make it clear that the demand for its AI chips remains healthy. Nvidia's revenue in the fourth quarter of fiscal 2025 (which ended on Jan. 26) increased a terrific 78% year over year to a record $39.3 billion. Adjusted earnings also increased by an impressive 71% to $0.89 per share. Both numbers were ahead of Wall Street's expectations.

The guidance indicates that Nvidia is on track to sustain its healthy momentum. It is expecting $43 billion in revenue in the current quarter, which would translate to a 65% increase from the prior-year period. However, Nvidia could exceed its own expectations as it ramps up the supply of its latest generation Blackwell processors to support the fast-growing customer demand.

More importantly, Blackwell can help Nvidia maintain its dominant position in the AI chip market thanks to its versatility. Management pointed out on the latest earnings conference call that "Blackwell addresses the entire AI market from pretraining, post-training to inference across cloud, to on-premise, to enterprise."

Nvidia further points out that the arrival of low-cost reasoning models such as DeepSeek's R1 is likely to increase computing demand substantially. This bodes well for the company's Blackwell architecture, which Nvidia claims is capable of processing requests 25 times faster at a 20 times lower cost when compared to the previous generation H100 processor. As such, it won't be surprising to see Nvidia maintaining its dominant share of around 85% in the AI chip market going forward.

This is also probably the reason why analysts have increased their revenue growth expectations for the company for the current and the next two fiscal years.

NVDA Revenue Estimates for Current Fiscal Year data by YCharts

The company's earnings, meanwhile, are expected to increase by 50% in the current fiscal year despite the near-term margin pressure it is going to face while ramping up the output of its Blackwell processors. Nvidia points out that its adjusted gross margin will head back to the mid-70% range later in the fiscal year from the low-70% range right now once Blackwell production is fully ramped up.

So, don't be surprised to see Nvidia's earnings growing at a faster pace and exceeding analysts' expectations as the year progresses.

The case for Palantir Technologies

Palantir Technologies is one of the leading vendors of AI software platforms, a market that's expected to become massive in the long run. Market research firm IDC estimates that the global AI software platforms market could grow from $28 billion in 2023 to $153 billion in 2028 at an annual rate of more than 40%.

This fast-growing market is already having a positive impact on Palantir's performance. The company's revenue growth accelerated to 29% in 2024 from a 17% increase witnessed in 2023. Given that Palantir's top line came in at just under $2.9 billion last year, it is easy to see that the company still has a lot of room for growth in the future considering the potential size of the AI software platforms market.

What's worth noting here is that the pace at which Palantir is now signing new contracts is equaling the pace at which the AI software platforms market is expected to grow, as per IDC. The company reported a 40% year-over-year increase in its remaining deal value (RDV) in the fourth quarter of 2024 to $5.4 billion.

That was a significant improvement over the 22% year-over-year increase in this metric in the third quarter. Palantir's RDV refers to the total value of the company's unfulfilled contracts at the end of a quarter. So, the faster growth in this metric is proof that the company is now signing contracts at a faster pace than it is fulfilling, paving the way for stronger revenue and earnings growth in the future.

There is a good chance that Palantir's revenue pipeline will continue to improve in the future as the new customers that the company brings on board tend to sign bigger contracts eventually, thanks to the efficiency gains delivered by its Artificial Intelligence Platform (AIP). Palantir's overall customer count was up by 43% year over year in the previous quarter. As these customers start deploying Palantir's AIP into more areas, the company should witness an improvement in its RDV.

Also, the higher spending by existing customers is contributing toward an improvement in Palantir's margins. Its adjusted operating margin increased by 11 percentage points year over year last quarter. Not surprisingly, Palantir's adjusted earnings shot up an impressive 64% in 2024 to $0.41 per share. Analysts are expecting Palantir to sustain strong double-digit earnings growth going forward, though don't be surprised to see it exceed those expectations thanks to its fast-improving revenue pipeline and margin improvements.

PLTR EPS Estimates for Current Fiscal Year data by YCharts

The verdict

While Nvidia allows investors to benefit from the lucrative AI hardware market, Palantir enables them to make the most of the rapidly improving adoption of generative AI software. So, both companies could find a place in a diversified portfolio. However, the problem with Palantir is that it trades at a huge premium when compared to Nvidia, a company that's growing at a faster pace.

NVDA PE Ratio data by YCharts

Palantir's expensive valuation has created concerns that the stock may have gotten ahead of itself and is one of the reasons why it has pulled back significantly of late. Not surprisingly, analysts are expecting Palantir to deliver just 15% gains in the next year as per its median price target of $97. Nvidia, on the other hand, is expected to jump 51% over the next 12 months, according to analysts.

That won't be surprising as Nvidia's cheaper valuation and the faster earnings growth that it is expected to deliver this year could lead the market to reward it with more upside as compared to Palantir, making it easier for investors to decide which one of these two AI stocks is a better buy right now.