AI Boom Drives Stocks Skyward, But Valuation Concerns Linger
The artificial intelligence (AI) revolution is in full swing, and two industry giants, Palantir Technologies (NYSE: PLTR) and Nvidia (NASDAQ: NVDA), are reaping the benefits. Their shares have surged 223% and 194%, respectively, this year, making them the second- and third-best performing members of the S&P 500.
Billionaire Ken Griffin’s Contrarian Bets
Interestingly, Ken Griffin’s Citadel, the most profitable hedge fund in history, has been making contrarian bets on these two AI powerhouses. Griffin purchased 4.6 million shares of Palantir, increasing his stake by 452%, while simultaneously selling 33.9 million shares of Nvidia, slashing his stake by 93%.
Palantir: AI Leader with a Pricey Tag
Palantir specializes in data analytics software, offering products like Foundry and Gotham that enable businesses to integrate data, develop machine learning models, and interact with digital assets. Its Artificial Intelligence Platform (AIP) enhances these products by supporting large language models and generative AI. Forrest Research recognized Palantir as a leader in AI/ML platforms, and its financial results have been encouraging, with revenue jumping 30% to $726 million. However, the company’s exorbitant price tag, with a valuation of 157 times adjusted earnings, raises concerns. Only 27% of analysts rate the stock a buy, and even Ken Griffin’s Citadel was buying aggressively.
Nvidia: Dominance in AI Chips and Software
Nvidia, on the other hand, is a force to be reckoned with in the AI chip market, holding 90% market share. Its dominance is built on software, particularly its CUDA platform, which has been instrumental in the development of AI applications. The company’s hardware portfolio, including its recently debuted central processing unit (CPU) for data center servers, affords it yet another advantage. Nvidia’s financial results have been strong, with revenue rising 122% to $30 billion, and non-GAAP net income increasing 152% to $0.68 per diluted share.
Valuation Concerns and Investment Opportunities
While both companies are well-positioned to benefit from the AI boom, investors need to consider valuation. Palantir’s pricey tag makes it a less appealing investment opportunity, whereas Nvidia’s reasonable valuation of 65.6 times adjusted earnings makes it a more attractive option. Investors may want to consider buying a small position in Nvidia, despite Ken Griffin’s Citadel selling shares aggressively.
Before You Invest…
It’s essential to do your due diligence before investing in either Palantir or Nvidia. Consider seeking guidance from reputable sources, such as the Motley Fool Stock Advisor team, which has identified what they believe are the top 10 stocks for investors to buy now.
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