Better Tech Stock: Palantir vs. Reddit

In the past year, many technology stocks have seen remarkable growth. Two of the standout names in this sector are Palantir Technologies (PLTR) and Reddit (RDDT).

Palantir has experienced a massive increase in its stock price, with shares rising over 250% in the twelve months leading up to March 20. Reddit's stock has also made headlines, climbing from a 52-week low of $37.35 last April to an impressive peak of $230.41 in February of the same year.

Currently, this could be an opportune moment to consider investing in one of these companies. Recent uncertainties surrounding the U.S. economy, alongside fluctuations caused by Donald Trump's tariffs, have introduced volatility to the stock market, resulting in price declines for many stocks, including Palantir and Reddit.

Both stocks have seen considerable drops from their peak values recorded in February.

Palantir's AI Potential

Palantir is strategically positioned to benefit from the rapidly growing artificial intelligence (AI) sector. The company has invested years in developing digital tools that allow its software to comprehend the relationships between various types of data. At the core of its AI Platform (AIP) is the ontology, which enables organizations to deploy AI solutions in a matter of days.

AIP has gained significant traction with customers, leading to a substantial increase in Palantir's sales. The company closed out 2024 with a revenue of $2.9 billion, marking a 29% rise from $2.2 billion in 2023.

Palantir not only reports increasing revenues but also maintains profitability, achieving a robust gross margin of 80% in 2024. This strong performance resulted in a net income of $468 million for the year, up from $217 million in 2023.

Additionally, Palantir is expanding into the vast manufacturing sector with a new product called Warp Speed. Launched in 2024, Warp Speed leverages AIP to enhance manufacturing processes by effectively managing supply chains and resource planning.

Reddit's Social Media Growth

Reddit's share prices surged over the past year, climbing 165% as the platform posted impressive business results. The social media giant has seen significant user growth, celebrating nearly 20 years since its launch.

By the end of 2024, Reddit reported "daily active unique users" (DAUq) of 101.7 million, reflecting a 39% year-over-year increase. DAUq refers to individuals visiting Reddit's website or mobile app at least once within a 24-hour period.

Being a social media platform, Reddit relies heavily on its users to sustain its virtual communities. It serves as a comprehensive online forum where individuals can engage in discussions covering a diverse array of topics and interests.

The increase in DAUq is crucial as Reddit's advertising revenue hinges on the number of users seeing ads on its platform, which translates to higher potential earnings for the company. This positive trend is evident in Reddit's financial performance in 2024.

Reddit surpassed the $1 billion revenue threshold, concluding the year with $1.3 billion in total sales, representing an extraordinary growth rate of 62% compared to 2023, which recorded $804 million.

Not only is Reddit attracting more users and generating revenue, but it also operates a highly profitable business. In 2024, its gross margin reached a remarkable 90.5%, an increase from 86.2% the previous year.

As a result, Reddit closed the fourth quarter with a net income of $71 million, significantly up from $18.5 million in 2023. Nevertheless, for the entire year, Reddit posted a net loss of $484.3 million due to IPO-related expenses from the preceding year.

With 2024 concluded and a solid gross margin, Reddit is in a favorable position to maintain its profitability from Q4 into the following quarters.

Comparing Palantir and Reddit

The impressive performance by both Palantir and Reddit throughout 2024 sheds light on why their stock prices have soared. As they look ahead to 2025, both companies expect continued sales growth.

Palantir projects Q1 revenue to reach at least $858 million, a 35% growth compared to last year's $634 million. Meanwhile, Reddit aims for Q1 revenue between $360 million and $370 million, which translates to a minimum 48% increase from Q1 2024's sales of $243 million.

Given their strong business metrics, deciding between these two tech stocks can be challenging for investors considering a single purchase. As a deciding factor, it is also worthwhile to look at their valuations based on forward price-to-earnings (P/E) ratios. This metric indicates how much investors are willing to pay for a dollar's worth of earnings, calculated based on estimates for the next 12 months.

Due to the recent stock market fluctuations, both Palantir and Reddit have seen their forward P/E ratios decrease from February to March. Despite this, Reddit's forward P/E of 36 is much lower than Palantir's 156, suggesting that Reddit offers better value in the current market environment.

Investors might consider holding shares in both companies given their strong management and impressive results. However, if forced to choose only one, Reddit's more favorable valuation provides it an edge over Palantir as the preferred tech stock for investment at this time.

Palantir, Reddit, Stocks