For much of the past two years, big tech has dominated the artificial intelligence (AI) storyline. “Magnificent Seven” members Microsoft, AmazonAnd Alphabet have invested billions in the likes of ChatGPT maker OpenAI and perhaps its biggest rival, Anthropic.
Meanwhile there is Teslathe brainchild of Elon Musk that aims to bring self-driving cars and humanoid robots to the masses. And of course, virtually none of the generative AI applications being developed by these mega-cap tech companies would even be possible without the help of Nvidia‘s graphics processing units (GPUs) and proprietary software.
If you’ve read any of my previous pieces, you know that I tend to use November 30, 2022 as my starting point for the AI revolution. To add some context, that’s the day ChatGPT was released to the public. Since then, Nvidia has easily outperformed each of its Magnificent Seven peers – with a gain of more than 700% at market close on December 12, 2024.
To put it bluntly, this is Nvidia’s world and everyone else is just living in it. However, smart investors realize that the performance of even the biggest giants can be matched. Outside of big tech, there is one company that has maintained star status in the field of AI Palantir Technologies(NASDAQ:PLTR).
Palantir has proven its ability to compete with larger established players in the enterprise software world, and some investors, like billionaire entrepreneur Chamath Palihapitiya, claim the company hasn’t even started scaling up yet.
With so much potential on the horizon, is it possible that Palantir is 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 in developing AI-powered services.
Karp stated: “The experts who write about these things seem to believe that the asset, i.e. the LLM, is the valuable aspect of this and that the actual ownership, i.e. how you handle the asset, 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 Gemini from Alphabet, Claude from Amazon, Meta‘s Llama and ChatGPT all offer unique features, the average user can’t really tell the difference between these platforms. According to Karp, the real value proposition is the way data is entered into LLMs through supporting software integrations. And that’s where he believes Palantir has an edge.
In April 2023, Palantir released its fourth major product, the Artificial Intelligence Platform (AIP). In the table below, I’ve included some key performance indicators that illustrate the impact AIP is having on Palantir.
Metric
Q3 2023
Q4 2023
Q1 2024
Q2 2024
Q3 2024
Sales growth (% year-on-year)
17%
20%
21%
27%
30%
Number of customers
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. The growth of the company’s customer base is accelerating revenue every quarter, while keeping profit margins at healthy levels. The combination of revenue growth and strong margins provides Palantir with robust financial flexibility in the form of consistent free cash flow.
By all accounts, Palantir seems unstoppable. But despite this impressive performance, there is still further analysis to be discussed before labeling the company as one with Nvidia-like potential.
Image source: Getty Images.
When you compare a company to Nvidia, there’s more to it than just valuation and share price.
Nvidia’s rise as the biggest player in AI isn’t just due to its GPUs and computer networking business. It actually is How that company really works. Nvidia’s hardware (i.e. GPUs) is tightly integrated with the Compute Unified Device Architecture (CUDA) software platform.
The combination of Nvidia’s GPUs on top of CUDA has effectively created a “lock-in” effect among its customers – essentially owning the AI stack within its customers’ ecosystems. It is this dynamic that has helped Nvidia gain an estimated 90% market share, absolutely owning AI inference and training protocols.
Furthermore, with more than $1 trillion expected in AI infrastructure investments over the next three years, Nvidia’s firm grip on the market means Nvidia can continue to gain more and more market share, making the benefits even more lucrative.
When it comes to enterprise software, I can’t say Palantir has as much potential as Nvidia’s. In my view, GPUs and data centers are “must-have” items for generative AI development. Software and data analysis, on the other hand, fall more under the heading of ‘nice-to-have’.
Despite its importance in data processing and making LLMs more useful, I doubt that enterprise software is truly indispensable. Moreover, with stiff competition from among others SnowflakeDatabricks and more, I think Palantir will struggle to create a similar “lock-in” dynamic as 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. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, 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 holds positions in 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 to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Could this newcomer to artificial intelligence (AI) be the next Nvidia? was originally published by The Motley Fool
