For the past two years, big tech has dominated the artificial intelligence (AI) story. “Magnificent Seven“Members Microsoft, AmazonAnd alphabet have invested billions in companies like ChatGPT inventor OpenAI and perhaps its biggest competitor Anthropic.
There are now TeslaElon Musk’s idea that wants to make self-driving cars and humanoid robots accessible to the masses. And of course, virtually none of the generative AI applications being developed by these mega-tech companies would be possible without the help of Nvidia‘s graphics processing units (GPUs) and proprietary software.
If you have read any of my previous articles, you know that I tend to use November 30, 2022 as the starting point for the AI revolution. To add some context, this is the day ChatGPT was opened to the public. Since then, Nvidia has far outperformed each of its Magnificent Seven competitors, up over 700% as of market close on December 12, 2024.
To put it bluntly: This is Nvidia’s world and everyone else just lives in it. However, smart investors are aware that the performance of even the biggest giants can rival them. Outside of Big Tech, there is one company that has maintained star status in the AI space Palantir Technologies(NASDAQ:PLTR).
Palantir has proven it has the ability to compete with larger incumbents in the world of enterprise software, and some investors such as Billionaire entrepreneur Chamath Palihapitiya argue that the company hasn’t even started scaling yet.
With so much potential on the horizon, is it possible that Palantir is the next Nvidia hiding in plain sight? Let’s dive in and find out.
During Palantir’s third quarter earnings call, CEO Alex Karp made an interesting statement about how data integration is the most important variable in developing AI-powered services.
Karp proclaimed: “The experts who write about these things seem to believe that the commodity, i.e. the LLM, is the valuable aspect of it and that the actual asset, i.e. the way you handle the commodity, is the actual value.”
What Karp is trying to say here is that large language models (LLMs) are a commodity rather than a proprietary technology. While Alphabet’s Gemini, Amazon’s Claude, Meta‘s Llama and ChatGPT all offer unique features, the average user can’t really tell the difference between these platforms. From Karp’s perspective, the real value proposition is how data is fed into LLMs through supporting software integrations. And that’s where he believes Palantir has the advantage.
In April 2023, Palantir released its fourth major product called Artificial Intelligence Platform (AIP). In the table below, I have listed a number of key performance indicators that illustrate the impact AIP is having on Palantir.
Metric
Q3 2023
Q4 2023
1st quarter 2024
Q2 2024
Q3 2024
Sales growth (% YoY)
17%
20%
21%
27%
30%
Number of customers
453
497
554
593
629
Adjusted gross margin
82%
84%
83%
83%
82%
Adjusted free cash flow
$140.8 million
$304.7 million
$148.6 million
$148.7 million
$434.5 million
Data source: Palantir Investor Relations.
The introduction of AIP has been transformative for Palantir. Growth in the company’s customer base results in increased sales quarterly while maintaining profit margins at healthy levels. The combination of revenue growth and strong margins provides Palantir with robust financial flexibility in the form of consistent free cash flow.
By all accounts, Palantir seems unstoppable. However, despite this impressive performance, further analysis needs to be discussed before labeling the company as a company with Nvidia-like potential.
Image source: Getty Images.
Comparing a company to Nvidia is about more than just valuation and share price.
Nvidia’s emergence as the biggest player in AI isn’t just due to its GPU and computing networking businesses. That’s actually it How the business really works. Nvidia’s hardware (i.e. GPUs) is tightly integrated with the Compute Unified Device Architecture (CUDA) software platform.
Combining Nvidia’s GPUs over CUDA has essentially created a “lock-in” effect among its customers – essentially the company owns the AI stack within its customers’ ecosystems. It’s this dynamic that has helped Nvidia capture an estimated 90% market share through ownership of AI inference and training protocols.
With Nvidia expected to spend more than $1 trillion in AI infrastructure spending over the next three years, Nvidia’s strong market dominance positions it to continue gaining more market share, making its upside potential even more lucrative.
When it comes to enterprise software, I just can’t say that Palantir has comparable potential to Nvidia. In my opinion, GPUs and data centers are “must-have” elements for generative AI development. In contrast, software and data analysis tend to belong to the “nice-to-have” category.
Despite its importance in computing and increasing the utility of LLMs, I question whether enterprise software is truly essential. Furthermore, with intense competition from people like SnowflakeDatabricks and many more, I think Palantir may struggle to create a similar “lock-in” dynamic as Nvidia has managed.
As much as I admire Palantir’s management and am proud to own the stock myself, I can’t say the company will become the next Nvidia.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Adam Spatacco holds positions at Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, Palantir Technologies and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, Snowflake and Tesla. The Motley Fool recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has one Disclosure Policy.
