Palantir was the best performing stock in the S&P 500 in 2024. But this other artificial intelligence (AI) powerhouse has been the best performing stock in the S&P 500 for the past 2 decades.

After a magnificent performance in 2023, the S&P 500 i Nasdaq Composite posted another year of generous gains in 2024. Among the market’s biggest gainers over the past two years are megacap technology stocks, collectively known as “Magnificent Seven.”

However, last year a smaller player actually outscored each and every one of his peers by a considerable margin. In 2024, data analytics company shares Palantir Technologies (NASDAQ: PLTR) it soared 340%, making it the best performer in the S&P 500 index.

That said, the rise in Palantir’s stock price has resulted in considerable expansion in its valuation. By most traditional valuation metrics, Palantir stock should be considered expensive and overbought at this time.

Up and down arrows behind blocks indicating S&P 500. — Image source: Getty Images.

Below, I’ll reveal which artificial intelligence (AI) stocks have outperformed the S&P 500 over the long term. I’ll also explain why this stock should be considered reasonably valued and could make for a tempting buy right now.

According to data compiled by YCharts, semiconductor stock Nvidia (NASDAQ: NVDA) it has been the best performer in the S&P 500 over the long term. In the table below, I’ve broken down Nvidia’s total performance over the past five, 10, 15, and 20 years.

metric	5 years	10 years	15 years	20 years
Nvidia stock total return	2,130%	28,650%	32.990%	82.830%

Data source: YCharts.

To put these percentages into perspective, if you had invested even just $1,000 in Nvidia 20 years ago, you’d have over $800,000 today.

There are a few ideas I’d like to explore given the above figures. Every now and then a company comes along that changes the game and turns a modest investment into generational wealth. However, returns of this magnitude are quite rare.

The larger theme I’d like to drive home is the importance of long-term investing. Berkshire Hathaway World-renowned CEO and investor Warren Buffett once said, “If you’re not thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.” Clearly, holding onto Nvidia stock over the past two decades has been a wise move.

However, just because you decide to buy a stock and hold it for many years does not guarantee market-beating returns. Whether people want to admit it or not, there is always a certain degree of luck involved in the world of investing.

NVDA Total Performance Level Chart — NVDA Total Return Level data for YCharts

In the chart above, you can see that most of Nvidia’s gains came over the past two years. The reason? Because AI became the next megatrend in the stock market, and Nvidia’s critical role in the space has fueled an epic period of extended buying activity.

Ultimately, while those who bought Nvidia stock 20 years ago and actually held onto it have a lot to be happy about, it’s highly unlikely that those people were thinking about AI when they took a seat in the company

In 2024 alone, Nvidia stock rose 171%, and the company gained more than $2 trillion in market capitalization. Yet despite this unprecedented rate of valuation growth, Nvidia stock remains reasonably valued.

NVDA net income (quarterly) chart — NVDA Net Income (Quarterly) data for YCharts

The chart above illustrates an interesting dynamic between Nvidia’s revenue and profitability. Specifically, while AI tailwinds have fueled record growth for the company across the board, Nvidia’s net income and free cash flow are accelerating at a faster rate than the market value of the company

This means that while Nvidia stock has risen exponentially over the past few years, the stock remains reasonably priced when viewed through the lens of earnings-based valuation metrics such as price- profit (P/E) or the price. free cash flow (P/FCF) ratios.

Nvidia stock is currently trading at a price-to-earnings ratio of 31.7, nearly identical to where it traded at this time last year. Given that 2025 looks set to be a big year for the company thanks to its new Blackwell chip architecture, I suspect Nvidia’s profit margins are in a good position to continue expanding.

As long as the current momentum illustrated in the chart above holds, Nvidia stock should remain reasonably priced, making it a rallying buy for investors with a long-term time horizon.

Before you buy shares in Nvidia, consider this:

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Adam Spatacco has positions in Nvidia and Palantir Technologies. The Motley Fool has positions in and recommends Berkshire Hathaway, Nvidia and Palantir Technologies. The Motley Fool has one disclosure policy.

Palantir was the best performing stock in the S&P 500 in 2024. But this other artificial intelligence (AI) powerhouse has been the best performing stock in the S&P 500 for the past 2 decades. was originally published by The Motley Fool

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