3 Reasons Palantir Could be the AI Stock Of the Next Decade

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To understand Palantir Technologies’ ( NYSE:PLTR ) potential upside from artificial intelligence, I suggest you read the Aug. 17 interview by New York Times columnist Maureen Dowd about Alex Karp, the CEO and co-founder of the Denver-based tech company.

There is no question that Karp is a brilliant person. Different. But smart. Dowd does an excellent job of understanding the man’s philosophy on life and business. It’s well worth a read.

His thoughts about AI are critical regarding Palantir’s future success.

“I think a lot of the issues come back to ‘Are we in a dangerous world where you have to invest in these things?’” Mr. Karp told me, as he moved around his living room in a tai chi rhythm, wearing his house shoes, jeans and a tight white T-shirt. “And I come down to yes. All these technologies are dangerous.” He adds: “The only solution to stop A.I. abuse is to use A.I.,” Dowd quoted Karp.

As long as Karp is running Palantir, I feel confident that the company will keep AI abuses to a minimum.

It’s not the only reason why Palantir is the AI stock with the most potential upside. Here are three more to consider if you’re considering buying its stock.

• Its revenue is accelerating because of AI.
• The government is doing better than investors realize.
• It will grow into its valuation over the next 12-18 months.
• Palantir is one stock that could benefit from the coming AI ‘supercycle’ but you absolutely need to grab a copy of our brand-new “The Next NVIDIA” report . It breaks down the investing cycle of AI so you can pick the winners of this once in a live time opportunity.

Technically, Palantir is a software business. It creates software products that allow its customers to make better and more informed decisions. However, these decisions are only made after the company's software mines an incredible amount of data.

“He described what his company does as ‘the finding of hidden things’ — sifting through mountains of data to perceive patterns, including patterns of suspicious or aberrant behavior,” Dowd writes.

The company’s first software platform was Gotham, developed to help the U.S. and allied military forces find the bad guys. Karp wouldn’t say in Dowd’s interview if Gotham helped find Osama Bin Laden, but it likely did.

Palantir’s second software platform was Foundry, which focused on commercial organizations. It helped companies create operating systems for their data, making it easier to find, understand, and leverage internal information for future business success.

Once Palantir began onboarding companies, not just defense departments, investors became more interested in its future potential.

In 2017, the company created Apollo, its third software platform. According to a 2022 Palantir paper, Apollo “enables the secure, autonomous delivery of your software to any environment, anywhere on Earth.” It essentially automates software delivery and integration.

Lastly, and most importantly, is AIP, Palantir’s artificial intelligence platform.

Alex Karp’s latest shareholder letter in August discussed AIP. He admits it has been and will continue to transform the company despite being slightly over a year old. That’s a bold statement.

The company’s commercial revenue jumped in Q2 2024, rising 24.6% to $307.4 million and accounting for 45.3% overall, up 180 basis points from a year earlier. The segment’s contribution, which excludes R&D expenses, general and administrative expenses, and stock-based compensation expenses, was $182.1 million, 59.5% higher year-over-year.

There is no question that Palantir’s growt h is accelerating due to AIP. Many are skeptical, however, about its valuation—it trades at nearly 30 times sales and 78 times cash flow—despite the obvious growth contribution from AI and language learning models.

Karp pointed out in its shareholder letter that the company’s Q2 2023 revenue growth was 13%. Since it launched AIP around that time, it’s generated four consecutive quarters of sequential growth—17%, 20%, 21%, and 27% in the latest quarter—doubling its growth rate in the past year. The same holds true for its non-GAAP profits.

Palantir closed 27 deals in the second quarter, each worth over $10 million. That doesn’t happen without AIP.

Although its commercial business has seen its revenues accelerate faster than its government business, AI will likely change that.

“The U.S. government has begun awakening as well to the scope of the opportunity ahead. This past quarter, for the first time in our company’s history, the trailing twelve-month revenue in our U.S. government business—including defense and intelligence agencies—surpassed $1 billion,” Karp stated in the shareholder letter.

Its Q2 2024 presentation highlighted the company’s five-year, $480 million contract with the U.S. Department of Defense’s Chief Digital and Artificial Intelligence Office (CDAO). The contract will help the DoD to scale its AI/ML capabilties.

So, while commercial businesses are lining up for Palantir’s AIP services, government agencies in America and overseas, while somewhat late to the party, should continue to come calling for its services.

Let’s not forget that its government business didn’t do badly in Q2 2024, growing revenue by over 22% year over year and contributing a 33% increase in profit. It is hardly struggling.

I expect its one-two punch to continue delivering for shareholders.

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