How to Analyze a Stock: A Guided Learning Approach with NVIDIA and Palantir

Imagine you are sitting down with two intriguing stocks in front of you: NVIDIA (NVDA) and Palantir (PLTR). Both have captured market attention, but you are unsure which is the better investment. With a bit of guidance, let’s analyze them together using key metrics so you can feel confident about your decision.

1. Starting with the big picture: market cap

Market capitalization is the size of the company. Larger companies are often more stable, while smaller ones might offer higher growth potential but come with more risk.

NVDA: Market cap = $3,482.77 billion (large-cap). NVIDIA is a dominant player, offering stability and proven performance.

PLTR: Market cap = $149.83 billion (mid-cap). Palantir is much smaller, meaning it could grow faster, but it is also riskier.

Teaching moment
Large-cap stocks are often safer bets in uncertain markets. Mid-caps require closer attention to growth potential and financial stability.

2. Valuation metrics: is the stock fairly priced?

Price-to-earnings ratio (P/E)

The P/E ratio shows how much investors pay for each dollar of earnings.

NVDA: P/E = 66.66. High, but often justified by NVIDIA’s AI and semiconductor leadership.

PLTR: P/E = 328.85. Extremely high, which can signal over-optimism.

Teaching moment
Compare P/E to industry averages. For tech, under 30 is often reasonable. Higher values can be justified for leaders, but caution is warranted for less profitable firms.

PEG ratio (price/earnings to growth)

The PEG ratio balances P/E with growth. A PEG under 1 is attractive, over 2 suggests overvaluation.

NVDA: PEG = 1.13. Reasonable given strong earnings growth.

PLTR: PEG = 2.65. High, indicating price outpaces growth.

Teaching moment
Look for PEG values closer to 1 for growth stocks.

3. Profitability metrics

Return on equity (ROE)

ROE measures how efficiently a company uses shareholder capital.

NVDA: ROE = 123.77%. Exceptional efficiency.

PLTR: ROE = 12.41%. Moderate profitability.

Teaching moment
For established companies, ROE above 15% is generally strong.

Operating margin

Operating margin shows how much profit a company generates from core operations.

NVDA: Operating margin = 62.05%. Exceptional.

PLTR: Operating margin = 15.59%. Modest.

Teaching moment
For tech, margins above 20% are considered good. Leaders can exceed 50%.

4. Revenue growth: the engine of expansion

NVDA: Revenue growth = 122%. Indicates strong market demand and leadership in AI.

PLTR: Revenue growth = 30%. Solid, but slower relative to valuation.

Teaching moment
Revenue growth above 20% is a strong signal for tech companies.

5. Institutional holdings: the confidence indicator

Institutional holdings measure the percentage of shares owned by large investors.

NVDA: Institutional holdings = 66.15%. Strong institutional confidence.

PLTR: Institutional holdings = 51.01%. Moderate confidence.

Teaching moment
Holdings above 60% often indicate stability and professional conviction.

6. EBITDA margin: operational profitability

NVDA: EBITDA margin = 63.53%. Exceptional profitability.

PLTR: EBITDA margin = 15.03%. Modest.

Teaching moment
EBITDA margins above 30% are excellent for tech firms.

7. Free cash flow: financial flexibility

NVDA: Free cash flow = $33.73 billion. Ample capacity to reinvest and innovate.

PLTR: Free cash flow = $0.78 billion. Positive but limited flexibility.

Teaching moment
Strong and growing free cash flow supports long-term resilience.

8. Conclusion

Analyzing stocks requires a holistic view of metrics that describe growth, profitability, and stability. NVIDIA demonstrates strong performance across revenue growth, institutional confidence, and cash flow, making it a compelling long-term candidate.

Palantir shows promise but needs to improve profitability and scale to justify its valuation. By understanding these metrics and how they work together, investors can build more informed, resilient portfolios.