Comparing Tech Stocks: Palantir vs. Reddit

In recent months, many technology stocks have shown remarkable growth. Two notable examples are Palantir Technologies (PLTR) and Reddit (RDDT).

Palantir's stock price increased by over 250% in the year leading up to March 20. Similarly, Reddit's stock saw a significant rise, climbing from a 52-week low of $37.35 in April to a high of $230.41 by February.

With recent uncertainties surrounding the U.S. economy and regulatory tariffs from former President Donald Trump, investors have experienced stock market volatility. This fluctuation has negatively affected several companies, including both Palantir and Reddit, causing their stock prices to drop from their earlier highs.

Palantir's Position in AI

Palantir is uniquely positioned to take advantage of the growing artificial intelligence (AI) market. The company's software has been developed over numerous years to analyze relationships within various data sets. Central to its success is the ontology, which forms the backbone of its AI Platform (AIP) and allows organizations to integrate AI solutions in just days.

Due to AIP's popularity among clients, Palantir's revenue has experienced significant growth. The company reported $2.9 billion in revenue for 2024, marking a 29% increase from $2.2 billion in 2023.

In addition to its revenue growth, Palantir has maintained profitability, boasting a gross margin of 80% in 2024. This resulted in a net income of $468 million, which is up from $217 million in 2023.

Furthermore, Palantir is diversifying into the multitrillion-dollar manufacturing sector with a new initiative called Warp Speed. Launched in 2024, Warp Speed is designed to enhance manufacturing processes through AIP-driven software that helps manage supply chains and resource allocation.

Reddit's Community Growth

Reddit's stock surged over the past year, rising 165% as the company achieved outstanding business results. The social media platform demonstrated significant user growth, even after operating for nearly two decades.

By the end of 2024, Reddit recorded 101.7 million "daily active unique users" (DAUq), reflecting a remarkable 39% increase year-over-year. A DAUq is defined as an individual accessing Reddit's platform at least once in a 24-hour period.

As a social media entity, Reddit's success hinges on its ability to maintain an active user base, which fosters vibrant online communities. This factor is particularly important because the company generates revenue primarily through advertisements. Higher user engagement correlates with increased advertising revenue.

Reddit surpassed $1 billion in revenue by the end of 2024, reporting $1.3 billion in sales, representing a 62% growth from $804 million in 2023.

In addition to increasing user engagement and revenue, Reddit operates profitably, achieving a gross margin of 90.5% in 2024, an increase from 86.2% the previous year. However, the company reported an overall net loss of $484.3 million for the year due to expenses related to its IPO.

Now that 2024 has concluded, with a solid gross margin, Reddit is well-positioned to continue its profitability moving forward.

Making the Choice: Palantir or Reddit?

The impressive performance of both Palantir and Reddit during 2024 explains the substantial rise in their share prices. Looking ahead, both companies expect continued sales growth in 2025.

Palantir anticipates Q1 revenue to be at least $858 million, reflecting a 35% increase from last year's Q1 revenue of $634 million. Meanwhile, Reddit projects its Q1 sales to fall between $360 million and $370 million, indicating a minimum 48% rise from $243 million in Q1 2024.

With both companies demonstrating robust performance, deciding between the two stocks can be challenging. To add clarity, a look at their forward price-to-earnings (P/E) ratios can provide insight. This metric indicates how much investors are prepared to pay for each dollar of earnings based on forecasts for the next 12 months.

Due to stock market volatility, both Palantir's and Reddit's share prices have dipped recently, leading to a reduction in their forward P/E ratios from February to March. Currently, Reddit's forward P/E ratio stands at 36, significantly lower than Palantir's 156, suggesting that Reddit stock offers better value in comparison.

Investors may consider holding shares in both companies given their strong management and impressive results. However, for those who need to choose only one stock, Reddit's favorable valuation gives it an advantage over Palantir as the more appealing investment option today.

Disclaimer: This article does not constitute investment advice.

Tech, Stocks, Investment