Let’s first address the elephant in the room: It’s highly unlikely that investors, especially myself, will forget this. Nvidia. The company has blazed a trail for years and has become the gold standard for graphics processing units (GPUs) used to support artificial intelligence (AI). In fact, I’m as optimistic about the company and its future as I’ve ever been, and I continue to believe the company has a bright future.
So why should I “forget Nvidia” and double down on another AI stock instead? It comes down to portfolio management. I started accumulating Nvidia stock over six years ago and continued to grow my position until earlier this year. Nvidia shares are up 800% since the start of last year (at the time of writing) and over 3,300% in the past five years.
As a result of the stock’s parabolic move, Nvidia is now one of the dominant stocks in my portfolio. It has become a 10-bagger and now represents over 12% of my total holdings. From now on, I expect Nvidia to do the heavy lifting, and I don’t need to add capital to a stock that already represents a large portion of my portfolio.
For investors looking for another stock with significant potential, I recommend taking a look Palantir Technologies (NYSE:PLTR). I’ve owned the stock for a while, but earlier this week I more than doubled my position in this AI pioneer. This is why.
AI before AI went viral
Investors may not know that Palantir has a long history of developing AI and has been doing so since long before the technology went viral last year. The company was founded more than two decades ago with the idea that AI could help the U.S. intelligence community and our allies make better use of existing data.
Intelligence services had enormous amounts of data, but could not extract the most useful and important facts from it. Palantir developed sophisticated algorithms and data mining solutions that could follow the trail of breadcrumbs left behind by would-be terrorists and piece together details to form a picture that might otherwise be overlooked.
Palantir serves a broad cross-section of the U.S. intelligence and law enforcement communities, including the Federal Bureau of Investigation (FBI), the Central Intelligence Agency (CIA), the Department of Homeland Security (DHS), and the National Security Agency (NSA). that’s just the beginning. It also partners with the Centers for Disease Control and Prevention (CDC), various branches of the US military, the National Center for Missing and Exploited Children, and many more.
Once Palantir established itself in government agencies, it turned its attention to the business community, as its data mining and AI solutions were just as useful for businesses. This broad customer base and experience give Palantir an AI pedigree that is difficult to match.
Ready to strike
Palantir’s vast experience in this area allowed the company to make a leap when advances in generative AI arrived on the scene last year. The company already provided data mining and analytics services to enterprise clients, sifting through vast amounts of information and providing actionable intelligence.
In addition to its existing services, Palantir quickly developed its artificial intelligence platform (AIP), which “enables real-time, AI-driven decision making.” For example, AIP can search through a range of sales data to prioritize customers most likely to make a purchase. Another example from Palantir illustrates how AIP helps a manufacturer in the path of an approaching hurricane decide which orders to expedite, cancel or postpone before the storm hits and the resulting financial impact of those decisions.
Many companies would like to harness the power of AI, but simply don’t know where to start. Palantir came up with the AIP Bootcamp for those companies. “These immersive, hands-on keyboard sessions allow new and existing customers to build live alongside Palantir engineers, all working toward the common goal of deploying AI in operations,” the company said.
Demand was at an all-time high and the success of these workshops was phenomenal, leading to huge contract wins. Chief Revenue Officer Ryan Taylor explained:
Case in point: a leading utility signed a seven-figure deal just five days after completing boot camp. Another client immediately signed a paid deal after just one day of their multi-day bootcamp and converted it into a seven-figure deal three weeks later.
Palantir has seen a big increase in US commercial revenue, which grew 70% and 40% year-over-year in the fourth and first quarters, respectively. The company is barely keeping up with the rising demand for its boot camps, leading to more robust business results.
A little context
As I mentioned at the beginning, I still believe Nvidia has a long road ahead of it. That said, the opportunities presented by AI software are intriguing. The market is expected to grow from $1.49 billion in 2022 to $280 billion in 2032, or a total growth of 18,647%. Palantir is one of the few companies with the resources and experience to capitalize on that opportunity straight away while the competition lags behind.
Palantir recently achieved its sixth consecutive quarter of profitability. The most commonly used valuation metrics suggest the stock is overpriced at 212 times earnings and 25 times sales, but these numbers don’t take into account the company’s impressive growth rates. Measured by the price-to-earnings-growth (PEG) ratio, Palantir’s multiple comes in at less than 1, the standard for a undervalued stock.
These are not just empty words. I put my money where my mouth is and doubled my position at Palantir Technologies. Because, in my view, it is an attractive opportunity.
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Danny Vena holds positions at Nvidia and Palantir Technologies. The Motley Fool holds and recommends positions in Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.
Forget Nvidia: I just doubled my stake in an unstoppable artificial intelligence (AI). Here’s Why was originally published by The Motley Fool
