Over the past year, technology stocks have seen some impressive gains, and two standout performers have been Palantir Technologies and Reddit. Let’s take a closer look at what’s been happening with these companies.
Palantir’s stock has climbed more than 250% over the last 12 months through March 20. Meanwhile, Reddit’s stock shot up dramatically from a low of $37.35 last April to an incredible high of $230.41 by February.
With the current fluctuations in the U.S. economy and ongoing concerns about tariffs, market volatility has sent many stocks, including Palantir and Reddit, tumbling from their February peaks.
So, which of these stocks makes a smarter investment right now?
Palantir’s AI Powerhouse
Palantir is uniquely poised to ride the wave of the booming artificial intelligence industry. The company has invested years into developing digital tools that allow its software to decipher relationships between various datasets. At the heart of its AI Platform (AIP) is an ontology, enabling organizations to deploy AI solutions quickly, often in just a few days.
This functionality has resonated with customers, fueling a surge in Palantir’s sales. They closed 2024 with a revenue of $2.9 billion, marking a 29% increase from 2023’s $2.2 billion.
Palantir’s profitability is another highlight. In 2024, they reported an 80% gross margin, bringing net income to $468 million, up from $217 million in the previous year.
Aiming for further expansion, Palantir has ventured into the massive manufacturing sector with a new product called Warp Speed. Launched in 2024, this AIP-driven software aims to enhance manufacturing processes, including supply chain and resource management.
Reddit’s Soaring Popularity
Reddit’s share price surged by 165% last year, thanks to its impressive business performance. Even almost two decades after its inception, Reddit recorded a robust user growth in 2024.
By the end of the year, Reddit boasted 101.7 million "daily active unique uniques" (DAUq), reflecting a 39% uptick year-over-year. The "DAUq" metric counts individuals visiting Reddit’s site or app within a 24-hour window.
User engagement is key for Reddit, as the platform thrives on its vast digital communities where users engage in myriad discussions. This user metric is crucial since ad revenue underpins Reddit’s finances, and more users lead to more ad views and, consequently, higher revenue.
2024 saw Reddit surpass $1 billion in revenue, reaching $1.3 billion—an impressive 62% jump from 2023’s $804 million.
Reddit hasn’t just attracted users and boosted revenue; its business remains highly profitable. Their gross margin in 2024 hit 90.5%, a remarkable increase from 86.2% in the previous year.
While Reddit posted a net income of $71 million in the fourth quarter, a net loss of $484.3 million for the year was largely due to IPO-related costs. With 2024 now in the rearview mirror, Reddit looks set to extend its Q4 profitability into future quarters, buoyed by its high gross margin.
Palantir or Reddit: Which to Choose?
The stellar performances of Palantir and Reddit in 2024 have justified their soaring stock prices. Both companies expect to see continued sales growth into 2025.
Palantir anticipates its Q1 revenue will hit at least $858 million, a 35% rise from the previous year’s $634 million. Meanwhile, Reddit forecasts its Q1 sales to fall between $360 million and $370 million, at minimum a 48% increase over 2024’s Q1 figures.
Choosing between these two tech stocks is not straightforward, but we can use their forward price-to-earnings (P/E) ratios to help decide. This ratio indicates how much investors are willing to pay per dollar of earnings over the next year.
Despite the recent market turbulence affecting their stock values, Reddit’s forward P/E of 36 is notably lower than Palantir’s 156, suggesting Reddit presents a more attractive investment.
If you’re inclined, you might consider investing in both companies, as they are both well-managed and achieving outstanding results. However, if you’re only picking one, Reddit’s more appealing valuation might give it the edge over Palantir as the tech stock to consider now.
