Why Buying Nvidia Stock on the Dip Is Probably Smart -- and Buying Palantir Stock Probably Isn't

Sometimes you're hot. Other times you're not. Nvidia (NASDAQ: NVDA) and Palantir Technologies (NASDAQ: PLTR) have been on both sides of the fence in recent months.

Coming into 2025, these two artificial intelligence (AI) stocks were on a roll. Nvidia's shares soared 171% last year while Palantir skyrocketed a whopping 340%. The stories are much different now. Both stocks are down more than 20% from their peaks (with Palantir plunging nearly 30% below its previous high). Is buying these two once-hot AI stocks on the dip a smart move?

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Two big dips with different dynamics

While both Nvidia and Palantir have seen their share prices take a shellacking, their big dips have different dynamics. Let's first look at Nvidia.

After starting the year with a nice gain, the overall trajectory for Nvidia stock has been downward ever since (albeit with up-and-down swings along the way). The biggest news for the company came on Feb. 26 with its fourth-quarter update.

Nvidia again reported tremendous growth with Q4 revenue soaring 78% year over year and adjusted earnings per share jumping 71%. However, many investors were concerned that the chipmaker's growth continues to slow and its gross margins are sliding.

Meanwhile, Palantir's share price began to slump more quickly at the beginning of 2025. The stock soon reversed course, though, and went on a huge run that eventually resulted in a 65% year-to-date gain. But Palantir's momentum hit a brick wall a few weeks into February.

The company's Q4 results announced on Feb. 3 weren't the culprit. Instead, investors worried about Palantir CEO Alex Karp's planned sales of $1.2 billion of his shares and a report that steep U.S. defense budget cuts were coming. The U.S. government is Palantir's largest customer.

One smart pick, one not-so-smart

Returning to our original question: Is buying these stocks on the dip a smart move? I think Nvidia probably is a smart pick, but Palantir probably isn't.

For one thing, Nvidia's growth is much stronger than Palantir's. Even though Nvidia's revenue growth is slowing somewhat, the company still projects sales will jump 65% year over year in Q1. Palantir expects full-year 2025 revenue growth of 31%, down from 38% growth in 2024.

Nvidia's valuation is much more attractive than Palantir's, too. Sure, Nvidia's shares trade at a relatively high 26.2 times forward earnings. However, factoring in growth makes the stock look much less overpriced. Nvidia's price-to-earnings-to-growth (PEG) ratio, which includes five-year growth projections, is 1.13, according to LSEG. By comparison, Palantir's forward earnings multiple is a sky-high 158.7. Its PEG ratio is 3.09.

Looking ahead, I'd rather be sitting in Nvidia's position more than I would Palantir's. Nvidia should enjoy booming sales from its new Blackwell GPU chips this year. It has even more powerful chips on the way. Agentic AI, robotics, autonomous vehicles, and possibly artificial general intelligence (AGI) could drive increased demand for its technology.

Meanwhile, Palantir's top customer (Uncle Sam) is slashing spending with uncertainty surrounding how much agencies will spend on software going forward. I wouldn't rule out the possibility that Palantir's close association with the U.S. government could negatively impact its ability to win sales outside of the U.S., either.

How this take could be proven wrong

Note that I used the word "probably" in my answer about the wisdom of buying Nvidia stock on the dip but not buying Palantir. Why did I use this wiggle word? I acknowledge that my assumptions could be wrong.

Nvidia's growth could slow more than I anticipate if the demand for AI chips tapers off. Palantir could make more headway in landing corporate and foreign government customers than I think it will.

While my take could be proven wrong, though, I stand by it. I'm not alone in being much more bullish about Nvidia than Palantir, by the way. Wall Street has much greater expectations for Nvidia, too.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.