Palantir: The “Sleeper” play on the AI revolution

Key points

• Palantir’s Artificial Intelligence Platform (AIP) has the potential to be a massive product.

• Palantir reported its first GAAP profitable quarter earlier this month.

• With this momentum, the company’s AI strategy is to “take the entire market”.

• 5 stocks we like better than Palantir Technologies.

Nvidia CEO Jensen Huang calls ChatGPT’s November 2022 release the AI industry’s “iPhone moment,” triggering an arms race among tech firms, big and small. Microsoft quickly bought half of OpenAI, the company behind ChatGPT. At the same time, Google, Meta and Alibaba raced to develop their own competing AI language models.

However, many investors struggle to decipher the signal from the noise. Amid the frenzy, several companies are opportunistically cashing in on the fad. In contrast, others are legitimate players in what is bound to be a massive industry.

Palantir (NYSE:PLTR) emerges as a stalwart in the data analytics industry with extensive experience utilizing AI to solve complex data problems. The company has a long track record of dealing with massive datasets from secretive clients with sensitive data like the National Security Agency (NSA), the Federal Bureau of Investigation (FBI), and the US Army.

While the company has utilized AI since its start, it only recently started going all-in on generative AI models similar to ChatGPT. The firm recently announced its Artificial Intelligence Platform (AIP), which allows companies to connect AI models to their private data creating a real-time view of their business.

The powerful data analytics firm has thus far served as a “sleeper play” on AI, failing to participate in past rallies which saw big moves from stocks like C3.ai NYSE: AI, Nvidia NASDAQ: NVDA, and Microsoft NASDAQ: MSFT.

But the tide is shifting. Multiple bullish catalysts are surfacing, including the company’s recent blockbuster earnings report and the “record demand” for its new tool, Artificial Intelligence Platform (AIP).

Q1 earnings: Turning the corner

Palantir reported Q1 earnings earlier this month to significant applause from investors as the stock surged more than 75% since the report’s release.

The company reported its first profitable quarter on a GAAP basis, earning $0.05 per share compared to a $0.23 per share in Q1 last year. They also reported a healthy 18% on the top line, logging $525 million in revenue. More significantly, the company expects to remain profitable for the rest of the year with a more impressive 25-30% growth in revenue.

Much of Palantir’s growth in Q1 was driven by Foundry, the company’s flagship data analytics product, which they recently released a completely revamped version of

AIP: Game changer?

Palantir recently announced its newest product, Artificial Intelligence Platform (AIP), which CEO Alex Karp says the demand is like “nothing I’ve ever seen in 20 years of being involved in Palantir.”

AIP is a platform that allows clients to deploy language models similar to ChatGPT within an enterprise computer system with access to private data. While tools like ChatGPT are great, they’re trained on very general data. The idea behind AIP is for the model to access a company’s entire dataset, giving it a deep understanding of how the company works.

AIP aims to give clients a real-time display of every element of a business while setting ground rules and guardrails for what data the models can access and what they can do with it.

The company is slowly rolling out the platform, but it gave a demo to a large insurance company, and the chief data said it was “years ahead of anything they had seen.”

One of Palantir’s demos of AIP showed how it could help a manufacturing company respond to a hurricane near one of its distribution centers by deciding how many customer orders will be affected and how to react by rerouting trucks or canceling orders.

Palantir’s long-standing experience dealing with institutions like the Pentagon with very sensitive data gives it a significant advantage in setting guardrails and safeguarding client data from third-party language models.

Can Palantir become an AI leader?

While OpenAI is the talk of the town, a recently leaked Google memo tells a different story about AI dominance. The memo claims that the open source community is “lapping” both Google and OpenAI on AI model development and that proprietary models like GPT-3 and Google Bard will eventually have no advantage.

With this in mind, Palantir COO Shyam Sankar believes that the long-term corporate value is in the application of AI, not the development of it. Palantir is uniquely positioned because its advantage lies in maneuvering through intricate and enormous datasets from secretive organizations with sensitive data like the CIA.

For this reason, Alex Karp told investors on a recent conference call that the company’s AI strategy is to simply “take the whole market.”

Bottom line

In the throes of the AI arms race, Palantir is emerging from its sleeper status, and the stock is on a hot run over the last few weeks. Between the promising 2023 outlook, the release of AIP, and further developments, Palantir stock will be volatile and conservative investors should tread carefully.

Palantir will reveal more information about AIP at its AIPCon event on June 1.