Many experts believe that the latest developments in artificial intelligence (AI) will have a profound impact on the technology and business landscape. These advanced systems can generate original content, streamline time-consuming processes, and automate procedures – all with a few simple commands. This in turn promises to increase productivity and save money, causing companies to rush to adopt next-generation algorithms.
One of the most obvious beneficiaries of this trend is Nvidia (NASDAQ: NVDA). The company’s graphics processing units (GPUs) provide the computing power needed to handle AI training and inference. However, the investing community is starting to look beyond the initial phase of AI adoption (hardware) to what comes next, which will invariably consist of AI-infused software. Sales of generative AI software are estimated to increase 18,647% to $280 billion by 2032, according to Bloomberg Intelligence.
While there is little doubt that Nvidia will continue to thrive thanks to its early adoption of AI, there is another company with decades of experience in this field that is poised to benefit from the tidal wave of AI software adoption.
An AI pioneer
Palantir Technologies (NYSE:PLTR) Palantir, Inc. established itself as an early leader in the AI ​​revolution more than two decades ago. The company worked with U.S. government agencies and allies to develop AI software tools to support the war on terror. Its AI-powered data mining systems connected the dots between seemingly unrelated pieces of information to flush out terrorists. In recent years, Palantir has turned its attention to the enterprise, empowering companies with actionable information to make data-driven decisions.
With decades of experience in the field, Palantir was able to pivot quickly and develop state-of-the-art generative AI tools to help businesses succeed. The company’s latest brainchild is the Artificial Intelligence Platform (AIP), which provides users with sharp insights to solve everyday business dilemmas.
A demo video from Palantir shows the impact of shutting down a production line in the face of an approaching hurricane. AIP offers suggestions on which orders should be accelerated, delayed or canceled, which orders can be diverted to other distribution centers and how those decisions affect backlogs and associated sales. It can also estimate the financial impact of hiring additional trucks to speed up high-priority deliveries before the storm hits, and assess how this will impact profits.
Most companies would jump at the chance to implement tools with those capabilities, but the complexity alone would be enough to confuse all but the most tech-savvy executives. Palantir addressed the problem by hosting AIP bootcamps. Developers and executives alike can attend these hands-on sessions, allowing them to build sophisticated applications alongside Palantir engineers and build real, business-specific solutions.
This strategy has been hugely successful, helping Palantir increase its commercial customer base in the US by 69% year over year and by 19% in the first quarter. This was largely due to AIP boot camps and the resulting accelerated deal volume.
This illustrates the enormous potential of Palantir’s bootcamp strategy.
The proof is in the pudding
The results are just beginning to impact the company’s financials. In the first quarter, revenue of $634 million grew 21% year over year and 4% quarter over quarter, resulting in Palantir’s sixth consecutive quarter of profitability. U.S. commercial revenue, including AIP, grew 40% year over year, while customer numbers for the segment grew 69%. Remaining deal revenue (RDV), or the remaining value of contracts not yet recorded as revenue, grew 74%.
Management expects the company’s growth to continue. Palantir raised its full-year guidance and now expects revenue of $2.68 billion, representing 20% ​​growth at the midpoint of its expectations. Perhaps more telling, however, is the expected strong performance of US commercial revenues, which are expected to roll in at least $661 million, up 45%. That’s up from the 40% growth forecast issued last quarter, suggesting there’s still strong demand for AIP bootcamps.
Every rose has its thorns
Aside from the company’s rapid growth and ties to AI, some investors will be turned off by Palantir’s valuation, which is understandable — but appearances can be deceiving. The stock currently trades for 211 times earnings and 25 times revenue, which is enough to make any value investor run for cover. But rapid growth has a way of skewing common valuation metrics. A more useful metric in this case, though, is the forward price/earnings-to-growth (PEG) ratio, which comes in at 0.79, while anything below 1 suggests the stock is undervalued.
Generative AI is still in the early stages of adoption and the resulting rollout could take years. Palantir is poised to be an early winner in the next phase of the AI ​​revolution thanks to its decades of expertise and brilliant go-to-market strategy.
That’s why Palantir stock is a buy.
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Danny Vena has positions in Nvidia and Palantir Technologies. The Motley Fool holds positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.
Sales of generative AI software could increase by 18,647% by 2032. 1 Unstoppable AI Stock to Buy Before They Do (Hint: It’s Not Nvidia) was originally published by The Motley Fool
