Better AI Stock for 2H25: NVIDIA or Palantir?

Shares of Palantir Technologies Inc. (PLTR), which sells a well-liked artificial intelligence (AI)-powered software platform, have surged 74.7% so far this year, significantly outperforming the leading AI chip maker, NVIDIA Corporation's (NVDA) 17.1% gain. This stark contrast in performance begs the question: Can Palantir maintain its impressive lead over NVIDIA in the second half of 2025, and which company presents a more compelling investment opportunity for your portfolio?

Palantir's Ascent: Software Dominance in AI

Palantir's robust year-to-date performance is largely attributable to its strong position in the enterprise AI software market. The company's platforms, Foundry and Gotham, are highly sought after by both government agencies and commercial clients for their advanced data integration, analytics, and AI capabilities. Palantir's ability to secure significant new contracts and expand existing relationships has fueled investor optimism. Its focus on operational AI, helping organizations make data-driven decisions and automate complex processes, resonates strongly in an era where efficiency and intelligence are paramount. The recurring revenue model, coupled with high switching costs for its sophisticated platforms, provides a degree of revenue predictability and stability.

However, Palantir's valuation remains a point of contention for some investors. Despite its growth, profitability has been a more recent development, and its price-to-sales ratio often reflects significant future growth expectations. The company's success in securing large, long-term government contracts, while lucrative, can also lead to lumpiness in revenue recognition, which some analysts view as a risk.

NVIDIA's Enduring Strength: The AI Infrastructure Backbone

NVIDIA, on the other hand, remains the undisputed leader in AI hardware, particularly in graphics processing units (GPUs) essential for AI model training and inference. While its year-to-date stock performance might seem modest compared to Palantir's, it follows several years of explosive growth driven by the insatiable demand for its AI chips. NVIDIA's ecosystem, including its CUDA software platform, creates a powerful moat, making it difficult for competitors to dislodge its dominance. The company is not just selling chips; it's selling a complete platform that developers and researchers rely on.

NVIDIA's growth trajectory is tied to the broader expansion of AI across all industries. As more companies adopt and scale AI initiatives, the demand for NVIDIA's high-performance computing solutions is expected to remain strong. However, the semiconductor industry is cyclical, and NVIDIA faces increasing competition from custom AI chips developed by hyperscalers and other chip designers. Supply chain constraints and geopolitical tensions also pose potential risks to its manufacturing and distribution.

Market Context and Future Outlook

The AI market is projected to grow exponentially, creating ample opportunities for both software and hardware providers. The second half of 2025 could see continued strong demand for AI infrastructure as enterprises move beyond pilot projects to full-scale AI deployments. This benefits NVIDIA directly. Simultaneously, the need for sophisticated AI software to manage, analyze, and act upon vast datasets will only intensify, playing directly into Palantir's strengths.

Interest rate policies and broader economic conditions will also influence investor sentiment towards growth stocks. A more stable economic environment could favor continued investment in high-growth AI companies. Regulatory developments around AI, including data privacy and ethical AI use, could also impact the operational landscape for both companies.

Investment Insights for 2H25

For investors, the choice between NVIDIA and Palantir in 2H25 depends on their risk appetite and investment horizon.

• NVIDIA (NVDA): Represents a more foundational, infrastructure-play on AI. Its dominance in hardware and strong ecosystem provide a relatively stable, albeit high-growth, investment. Investors seeking exposure to the core enabler of AI, with a track record of strong financial performance, might favor NVDA. Potential catalysts include new chip architectures, expansion into new markets like robotics and autonomous vehicles, and continued data center build-outs.

• Palantir (PLTR): Offers exposure to the application layer of AI, focusing on solving complex enterprise and government challenges. It's a higher-beta play, with potential for significant upside if it continues to expand its commercial footprint and demonstrate consistent profitability. Investors comfortable with higher volatility and a focus on software-driven AI solutions might find PLTR more appealing. Key drivers include new commercial contract wins, expansion of its AI Platform (AIP) adoption, and continued operational leverage.

Ultimately, a diversified approach might be prudent, considering both the foundational hardware and the transformative software aspects of the AI revolution. Both companies are leaders in their respective domains, and their performance in the second half of 2025 will largely depend on their ability to execute on their growth strategies amidst evolving market dynamics and competitive pressures.