Palantir Technologies (NYSE: PLTR) is quickly becoming the go-to provider of artificial intelligence (AI) software platforms for businesses and governments around the world. Evidence of this can be seen in the company’s recent acceleration in growth and improving revenue pipeline. Both metrics point to brighter times ahead.
Investors are taking notice and are buying up Palantir stock in droves. The stock is up an impressive 76% so far in 2024, and the following discussion offers clues as to why.
Palantir’s AI software platform has gained impressive traction
When Palantir reported its second-quarter results last month, the company reported a 27% year-over-year increase in revenue to $678 million. That was a solid improvement from the 13% year-over-year growth the company posted in the same period last year, and an acceleration from Q1 revenue growth of 21%.
There was a nice jump in the company’s customer base, as well as the size of the deals it closed with customers. Palantir’s management attributed the improving growth profile to the growing adoption of its Artificial Intelligence Platform (AIP), a software platform that helps enterprises and governments integrate generative AI into their processes to improve operational efficiency.
From helping customers build their own Large Language Model (LLM)-powered applications to helping them accelerate their day-to-day workflows using generative AI, the utility of Palantir’s AIP appears to have struck a chord with customers. That explains why the company has raised its revenue growth forecast for 2024, expecting its revenue to grow 24% this year to $2.75 billion.
More importantly, Palantir looks poised to maintain its excellent growth over the long term, as it ended the previous quarter with $4.3 billion in remaining deal value (RDV). The metric refers to the total value of Palantir’s contracts remaining at the end of a period, and it increased 26% year over year in Q2.
This AI hardware giant is making strides in the AI software market
So Palantir appears well on its way to capitalizing on the massive end-market opportunity available in the generative AI software market. But there’s another way for investors to capitalize on the growing demand for AI software, and a closer look might make investors think it’s a better AI software stock than Palantir.
Nvidia (NASDAQ: NVDA) is the top choice for companies looking for high-end AI hardware to train AI models, which has resulted in excellent revenue and profit growth for the company in recent months. Interestingly, comments from CFO Colette Kress on the recent earnings call suggest that Nvidia is also starting to make a dent in the enterprise AI software market. According to Kress, “We expect our software, SaaS, and support revenues to approach a $2 billion annual run rate this year, with Nvidia AI Enterprise making a notable contribution to growth.”
CEO Jensen Huang also commented, pointing out that customers can deploy Nvidia AI Enterprise software for $4,500 per graphics processing unit (GPU) per year. Considering that Nvidia’s AI GPUs cost $30,000 or more for a single chip depending on the configuration, enterprise customers looking to build and deploy AI models are getting a good deal through Nvidia’s AI software platform.
Nvidia offers multiple AI software offerings to customers. For example, the company’s AI Foundry platform, launched in July of this year, is an end-to-end solution that enables customers to build and deploy custom generative AI models. Nvidia offers popular base models that customers can customize and use to quickly bring AI applications (including chatbots, content creation tools, and document processing tools) to production.
Nvidia also offers pre-trained customizable AI workflows that can be used to extract data from PDFs or create customer service workflows, accelerate drug discovery in medicine, or build custom generative AI apps tailored to an organization’s needs. What’s worth noting is that adoption of Nvidia’s software solutions is accelerating at a rapid pace thanks to AI.
In its February earnings conference call, Nvidia management pointed out that its software and services offerings reached $1 billion in annual revenue by the fourth quarter of fiscal 2024. That puts the company’s software and services revenue on track to double in just one year. That’s significantly faster than the rate at which Palantir’s revenue is expected to grow this year.
Add to that the fact that Nvidia is benefiting hugely from growing demand for its AI chips, which led to a 122% year-over-year growth in the company’s revenue in the second quarter of fiscal 2025 to $30 billion, and it’s easy to see that the chipmaker is the most diversified player in AI. Another point worth noting here is that Nvidia stock trades at 28 times revenue, which is lower than Palantir’s revenue multiple of 29.
Moreover, Nvidia is the more attractive AI stock when comparing the earnings figures of both companies.
Investors looking for a cheaper alternative to Palantir to capitalize on the growth of the AI software market would therefore do well to take a closer look at Nvidia. Especially since the latter already has a thriving AI hardware business, making it a better growth stock to buy right now.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.
Meet the Artificial Intelligence (AI) Stock That Could Be the Next Palantir—Or Even Better Originally published by The Motley Fool
