The tech sell-off of 2025 has created several buying opportunities. Last year, the valuations for countless tech businesses went through the roof, making it difficult to bargain hunt. If you’ve been waiting for the right time to jump in or add to your positions, now could be that time.
Two iconic businesses in particular have seen their share prices slump so far this year: Palo Alto Networks (PANW -6.97%) and Nvidia (NVDA -7.03%). Both companies have compelling investment theses right now, but one stands taller with greater long-term upside.
Nvidia has this big advantage versus Palo Alto Networks
Before jumping into which stock is a better buy, it’s important to first understand the critical differences between each company’s business model.
Nvidia is primarily a chipmaker that produces graphics processing units, commonly referred to as GPUs. GPUs are specialized chips that make a ton of technologies possible — everything from gaming and photo editing to machine learning and artificial intelligence (AI) applications. In a nutshell, Nvidia is a major supplier of critical components to a wide array of large and growing industries, the AI industry being the most promising today.
Palo Alto Networks, meanwhile, can be thought of as a cybersecurity company. Its software delivers network security, cloud security, and a host of other security products meant to protect businesses from bad actors. Its product suite is impressive, boasting more than 80,000 enterprise customers worldwide, with billions of protected endpoints.
Both GPU manufacturing and cybersecurity are growing end markets. That’s evidenced by each company’s premium valuation. Nvidia shares trade at 20.6 times sales versus 14 times sales for Palo Alto Networks. But before you think Palo Alto Networks is the cheaper stock, it’s important to check the growth rates of each business. Wall Street analysts expect Nvidia to grow at more than 4 times faster than Palo Alto Networks next quarter. Nvidia also has significantly higher profit margins, aided by its best-in-class chips that customers, especially AI customers, demand above nearly every competing GPU.
Due to Nvidia’s higher growth rates, shares trade at just 13 times forward sales — only a small premium to Palo Alto Networks’ 12.2 times forward sales valuation. When you add in its far superior profit margins, Nvidia looks like the clear winner today. But there’s one other reason why Nvidia is a great bet for the next few years, or even the next few decades.
NVDA PS Ratio data by YCharts.
CUDA is Nvidia’s secret weapon
Nvidia isn’t just riding the AI wave to growth. The company invested in AI early, meaning its chips surpassed the performance of competing chips for this application many years ago. In fact, it was company’s launch of CUDA — its proprietary Compute Unified Device Architecture — way back in 2006 that has arguably given Nvidia the edge it maintains today when it comes to chip performance and overall market share.
CUDA’s main advantage was that it allowed developers to customize Nvidia’s chips easily and quickly for their specific applications. This improved performance, sometimes significantly. More importantly, it entrenched these customers into Nvidia’s ecosystem, making it more difficult to switch to a competitor’s GPUs.
Nvidia’s dominant position in GPUs, especially those used for AI and cloud compute applications, is no accident. Early investments and CUDA’s vendor lock-in should provide the company with a durable competitive advantage not typically seen in the quickly developing tech sector. After the pullback, Nvidia’s valuation, especially compared to other tech darlings like Palo Alto Networks, is looking too good to pass up. Investors should expect continued volatility, but now appears to be a great time to take a long-term position in a blue chip business targeting one of the biggest growth markets this century: AI.
Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.