For a lot of the final two years, huge tech has dominated the storyline revolving round synthetic intelligence (AI). “Magnificent Seven” members Microsoft, Amazon, and Alphabet have invested billions into the likes of ChatGPT creator OpenAI and maybe its greatest rival, Anthropic.
In the meantime there’s Tesla, Elon Musk’s brainchild that is seeking to convey self-driving vehicles and humanoid robots to the lots. And naturally, nearly not one of the generative AI functions being developed by these megacap tech enterprises would even be attainable with out the assistance of Nvidia‘s graphics processing models (GPUs) and proprietary software program.
If you happen to’ve learn any of my prior items, you will know that I have a tendency to make use of Nov. 30, 2022 as my place to begin for the AI revolution. So as to add some context, that’s the day ChatGPT was launched to the general public. Since then, Nvidia has outperformed every of its Magnificent Seven friends by an extended shot — gaining over 700% as of market shut on Dec. 12, 2024.
To place it bluntly, that is Nvidia’s world and everybody else is simply residing in it. Sensible buyers understand, nonetheless, that the performances of even the best behemoths may be matched. Outdoors of massive tech, one firm that has maintained star standing within the AI realm is Palantir Applied sciences(NASDAQ: PLTR).
Palantir has confirmed that it is able to competing with bigger incumbents on the planet of enterprise software program, and a few buyers reminiscent of billionaire entrepreneur Chamath Palihapitiya argue that the corporate hasn’t even begun to scale but.
With a lot potential on the horizon, is it attainable that Palantir is the subsequent Nvidia hiding in plain sight? Let’s dig in and discover out.
Throughout Palantir’s third-quarter earnings name, CEO Alex Karp made an fascinating assertion concerning how knowledge integration is crucial variable when creating AI-powered companies.
Karp proclaimed, “the consultants that write about these items appear to consider the commodity, i.e., the LLM, is the precious facet of this and that the precise asset, that means the way you handle the commodity, is the precise worth.”
What Karp is making an attempt to say right here is that enormous language fashions (LLMs) are extra of a commodity than a proprietary know-how. Whereas Alphabet’s Gemini, Amazon’s Claude, Meta‘s Llama, and ChatGPT all supply distinctive options, the typical consumer cannot actually inform the distinction between these platforms. From Karp’s purview, the true worth proposition is how knowledge is fed into LLMs by means of supporting software program integrations. And that is the place he believes Palantir has an edge.
In April 2023, Palantir launched its fourth main product known as the Synthetic Intelligence Platform (AIP). Within the desk under, I’ve included plenty of key efficiency indicators that illustrate the affect that AIP is having on Palantir.
Metric
Q3 2023
This autumn 2023
Q1 2024
Q2 2024
Q3 2024
Income progress (% yr over yr)
17%
20%
21%
27%
30%
Buyer rely
453
497
554
593
629
Adjusted gross margin
82%
84%
83%
83%
82%
Adjusted free money circulation
$140.8 million
$304.7 million
$148.6 million
$148.7 million
$434.5 million
Knowledge supply: Palantir investor relations.
The arrival of AIP has been transformative for Palantir. Progress within the firm’s buyer roster is resulting in accelerated income each quarter whereas revenue margins have maintained a wholesome stage. The mix of income progress and robust margins gives Palantir with sturdy monetary flexibility within the type of constant free money circulation.
By all accounts, Palantir appears unstoppable. But regardless of this spectacular efficiency, there’s additional evaluation to debate earlier than labeling the corporate as one with Nvidia-esque potential.
Picture supply: Getty Photographs.
When evaluating an organization to Nvidia, there’s extra to the equation than simply valuation and share value.
Nvidia’s emergence as the largest participant in AI isn’t just as a result of its GPUs and compute networking enterprise. It is truly how that enterprise actually works. Nvidia’s {hardware} (i.e., GPUs) is tightly built-in with its Compute Unified System Structure (CUDA) software program platform.
The mix of Nvidia’s GPUs layering on prime of CUDA has mainly created a “lock-in” impact with its clients — basically proudly owning the AI stack inside its clients’ ecosystems. It is this dynamic that has helped Nvidia purchase an estimated 90% market share — completely proudly owning AI inferencing and coaching protocols.
Moreover, with greater than $1 trillion of AI infrastructure spend projected over the subsequent three years, Nvidia’s tight grasp available on the market places it in place to proceed buying incremental market share, making its upside much more profitable.
In terms of enterprise software program, I simply can’t say that Palantir has commensurate potential to that of Nvidia. In my eyes, GPUs and knowledge facilities are “must-have” objects for generative AI growth. In contrast, software program and knowledge analytics are extra within the “nice-to-have” bucket.
Regardless of its significance in knowledge processing and making LLMs extra helpful, I query whether or not enterprise software program is really indispensable. Furthermore, with intense competitors from the likes of Snowflake, Databricks, and plenty of extra, I feel Palantir could battle to create the same “lock-in” dynamic like Nvidia has managed to do.
As a lot as I love Palantir’s administration and am proud to carry the inventory myself, I can’t say that the corporate will turn out to be the subsequent Nvidia.
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John Mackey, former CEO of Complete Meals Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of administrators. Suzanne Frey, an govt at Alphabet, is a member of The Motley Idiot’s board of administrators. Randi Zuckerberg, a former director of market growth and spokeswoman for Fb and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of administrators. Adam Spatacco has positions in Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, Palantir Applied sciences, and Tesla. The Motley Idiot has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, Palantir Applied sciences, Snowflake, and Tesla. The Motley Idiot recommends the next choices: lengthy January 2026 $395 calls on Microsoft and brief January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure coverage.
