For much of the last two years, Big Tech has dominated the storyline revolving around artificial intelligence (AI). “Magnificent seven“members microsoft, Amazonand Alphabet They have invested billions in companies like OpenAI, the creator of ChatGPT, and perhaps its biggest rival, Anthropic.
Meanwhile there is teslaa brainchild of Elon Musk that seeks to bring self-driving cars and humanoid robots to the masses. And, of course, virtually none of the generative AI applications these large-cap tech companies are developing would be possible without the help of NVIDIAGraphics processing units (GPU) and proprietary software.
If you’ve read any of my previous articles, you’ll know that I tend to use November 30, 2022 as a starting point for the AI revolution. To add some context, that is the day ChatGPT was released to the public. Since then, Nvidia has far outperformed each of its Magnificent Seven peers: it gained more than 700% by market close on December 12, 2024.
To put it bluntly, this is Nvidia’s world and everyone else just lives in it. However, smart investors realize that the performance of even the biggest giants can be matched. Outside of Big Tech, one company that has maintained its star status in the AI space is Palantir Technologies(NASDAQ: PLTR).
Palantir has shown that it is able to compete with larger companies in the enterprise software world, and some investors such as Billionaire businessman Chamath Palihapitiya They argue that the company hasn’t even begun to scale yet.
With so much potential on the horizon, is it possible that Palantir could be the next Nvidia hiding in plain sight? Let’s dig in and find out.
During Palantir’s third-quarter earnings call, CEO Alex Karp made an interesting statement about how data integration is the most important variable when developing AI-based services.
Karp proclaimed, “The experts who write about these things seem to believe that the product, i.e. the LLM, is the valuable aspect of this and that the real asset, i.e. how the product is managed, is the real value.”
What Karp is trying to say here is that large language models (LLMs) are more of a commodity than a proprietary technology. While Alphabet’s Gemini, Amazon’s Claude, Goal‘s Llama and ChatGPT offer unique features, the average user can’t really tell the difference between these platforms. From Karp’s point of view, the real value proposition is how data is fed into LLMs through supporting software integrations. And that’s where he believes Palantir has an advantage.
In April 2023, Palantir launched its fourth major product called Artificial Intelligence Platform (AIP). In the table below, I have included a series of key performance indicators that illustrate the impact AIP is having on Palantir.
Metric
Third quarter of 2023
Fourth quarter of 2023
First quarter of 2024
Second quarter of 2024
Third quarter of 2024
Revenue Growth (% year over year)
17%
20%
21%
27%
30%
Customer count
453
497
554
593
629
Adjusted gross margin
82%
84%
83%
83%
82%
Adjusted free cash flow
$140.8 million
$304.7 million
$148.6 million
$148.7 million
$434.5 million
Data source: Palantir Investor Relations.
The arrival of AIP has been transformative for Palantir. Growth in the company’s client list is leading to an acceleration in revenue each quarter, while profit margins have remained at a healthy level. The combination of revenue growth and strong margins provides Palantir with strong financial flexibility in the form of steady free cash flow.
By all indications, Palantir appears unstoppable. However, despite this impressive performance, there is more analysis to look at before labeling the company as a company with Nvidia-like potential.
Image source: Getty Images.
When comparing a company to Nvidia, there is more to the equation than just valuation and stock price.
Nvidia’s emergence as the biggest player in artificial intelligence is not just due to its GPUs and computer networking business. actually it is as That business really works. Nvidia’s hardware (i.e. GPUs) is tightly integrated with its Compute Unified Device Architecture (CUDA) software platform.
The combination of Nvidia’s GPUs layered on top of CUDA has basically created a “lock-in” effect with its customers: essentially owning the AI stack within its customers’ ecosystems. It is this dynamic that has helped Nvidia acquire an estimated 90% market share, absolutely owning AI training and inference protocols.
Additionally, with more than $1 trillion of AI infrastructure spending projected over the next three years, Nvidia’s strong dominance in the market puts it in a position to continue acquiring incremental market share, making its lead even greater. lucrative.
When it comes to enterprise software, I simply can’t say that Palantir has equivalent potential to Nvidia. In my opinion, GPUs and data centers are “must-have” elements for the development of generative AI. In contrast, software and data analytics are more in the “nice to have” group.
Despite its importance in processing data and making LLMs more useful, I wonder if enterprise software is really indispensable. Furthermore, with intense competition from companies such as SnowflakeDatabricks and many more, I think Palantir may have a difficult time creating a “lock-in” dynamic similar to what Nvidia has managed to do.
As much as I admire Palantir’s management and am proud to own the stock, I can’t say the company will become the next Nvidia.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Alphabet executive Suzanne Frey is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, Palantir Technologies and Tesla. The Motley Fool positions and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, Snowflake, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
