Over the last couple of months, a lot has been made about the pros and cons of artificial intelligence (AI). Tools such as ChatGPT have risen in popularity, and "big tech" companies have made a number of splashy investments in the AI space.
When it comes to AI, companies like Microsoft, Alphabet, Amazon, and Nvidia seem to be the most obvious beneficiaries. With that said, there are tons of companies out there that could become major forces in the AI arena. One such company is Palantir (PLTR -2.55%), the elusive big data firm that sells enterprise software to the government as well as large commercial businesses.
Palantir recently showcased its AI ambitions during its first-quarter earnings call. While I've been a Palantir bull for some time, the company's vision to marry its data capabilities with AI has me more excited than ever, and I'm not the only one. Let's check it out.
Don't call it a comeback
In my opinion, part of the reason Palantir stock has not been as popular with investors as other high-flying software names is that, admittedly, it's a hard company to wrap your head around.Wall Street has been critical of the company's heavy reliance on large government contracts and its lack of penetration in the private sector.
Companies of all sizes have vast amounts of data scattered among disparate systems. Palantir's core software layers on top of these systems in order to synthesize this unstructured data and provide end users with actionable insights. In addition to the government, Palantir primarily serves financial institutions such as Wall Street banks, healthcare companies, and supply chain operations.
Furthermore, some who short the stock believe that Palantir is no more than a consulting agency trying to market itself as a tech company. Yet there is one big recent development that I'd like to point out.
Throughout 2020 and 2021, tech investor and media darling Cathie Wood purchased millions of dollars of Palantir stock and frequently spoke about her conviction on CNBC. However, in 2022 Wood shocked her cohorts by exiting the position completely over concerns that the company's growth prospects were plateauing, and the competitive landscape was heating up.
Well, despite all of the hoopla surrounding Palantir as an imposter, combined with other names in tech that are dominating the headlines surrounding AI, Wood just surprised Wall Street and retail investors alike by purchasing Palantir stock back. The big question: why?
Image Source: Palantir Investor Relations.
How does AI fit into the equation?
Wood has been a cheerleader of several themes in technology. Her ARK Investment exchange-traded funds generally invest in areas such as telemedicine and quantum computing. It's not entirely a surprise that Wood revisited Palantir stock, especially now that the company formally unveiled its AI roadmap.
The image above illustrates Palantir's latest development, Artificial Intelligence Platform (AIP), which the company will sell to both the public and private sectors. During the unveiling of AIP, Palantir showcased a real-life military simulation.
In the example, a military dispatcher communicates to a base that an unidentified vehicle has been spotted and that it could potentially be carrying harmful equipment. Upon learning this information, military operators use AIP to ask questions relating to which adversaries may be present in the area, and then leverage AIP to deploy a drone to capture specific imagery. Once it is confirmed that the vehicle is indeed a threat, AIP is able to provide different game plans and scenarios.
While the government's need for AIP may seem obvious, the private sector also has myriad use cases. The ability to use AIP's large language models (LLMs) to ask questions and review multiple outcomes has huge implications for areas such as fraud and identity theft, logistics and inventory management, and so much more.
When the company released Q4 2022 earnings in February, Palantir's full-year 2023 revenue guidance was between $2.18 billion to $2.23 billion. However, during its Q1 earnings and following the announcement of AIP, Palantir slightly raised its full-year revenue guidance. Although AIP is in its early days, it's clear the demand from customers is there, and the updated guidance could very well be underestimated as the need for AI continues to grow.
Should you buy it?
Palantir stock has enjoyed a nice upswing lately. The stock is up over 60% over the last month as of this writing.
The most prudent course of action would be to dollar-cost average into the stock. While I am not a fan of buying a stock in momentum, it is difficult to recommend waiting around here. Unlike some of Palantir's cohorts, the AI euphoria does not appear to be fully priced into Palantir stock. In fact, I'd argue most investors are yet to view Palantir as a player in AI. For now, the stock looks like a fantastic buy at its current valuation, and could very well be a discounted AI play.
