Two tech giants, Palantir Technologies (PLTR) and MicroStrategy (MSTR), are set to join the Nasdaq-100 index on December 23. Both have seen remarkable stock price surges this year — over 300% for Palantir and more than 500% for MicroStrategy. But which makes for a smarter buy? Let’s break it down.

The Case for Palantir

Palantir specializes in helping governments and businesses unlock value from their data, and its Artificial Intelligence Platform (AIP) has been a game-changer. In the latest quarter, Palantir achieved record profits, with U.S. commercial revenue up 54% and government revenue climbing 40%. Its customer base has skyrocketed from 14 U.S. commercial clients four years ago to nearly 300 today.

Valuation and Growth Potential:
While its forward price-to-earnings (P/E) ratio of 200x seems steep, the forward PEG ratio of 0.6 suggests the stock is reasonably priced for its growth. With commercial demand surging, Palantir appears to be in the early stages of a robust growth story.

The Case for MicroStrategy

MicroStrategy’s software business has struggled, with software revenue dropping 10% in the latest quarter. However, the company has rebranded itself as the largest Bitcoin treasury, holding over 279,000 BTC (worth $29 billion). Investors view MicroStrategy as a proxy for betting on Bitcoin’s success.

Risks:
MicroStrategy’s reliance on Bitcoin ties its performance to the cryptocurrency’s volatile swings. The company has also taken on significant debt to fund Bitcoin purchases, recently announcing plans to raise $21 billion each in equity and fixed-income securities for further investments.

The Verdict

While MicroStrategy offers exposure to Bitcoin, its fortunes hinge on the cryptocurrency’s performance, presenting higher risk. On the other hand, Palantir is a profitable, rapidly growing software company capitalizing on the AI boom. For investors seeking growth with relatively lower risk, Palantir is the better choice among these two new Nasdaq-100 entrants.

This story was originally featured on The Motley Fool.

Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.