What happened
Shares of Palantir Technologies (PLTR -0.23%) stock rallied hard during the first six months of 2023, with shares surging 138%, according to data provided by S&P Global Market Intelligence. That ran circles around the roughly 16% gains of the S&P 500.
Technology stocks were among those hardest hit during the downturn, so the ongoing recovery undoubtedly played a part. However, the catalyst that sent the data mining company soaring was the rise of artificial intelligence (AI) and the surging demand for generative AI solutions.
Image source: Getty Images.
So what
Earlier this year, next-generation chatbot ChatGPT burst onto the scene, attracting over 100 million users just two months after its release. This was just the beginning of what would soon become a breakout year for generative AI. Microsoft fueled the fire when it was revealed that the tech giant had invested $13 billion in ChatGPT creator OpenAI and announced plans to integrate generative AI into its Bing search engine. However, it was Nvidia's breakout guidance -- which called for 64% year-over-year revenue growth -- that swept the tech landscape like wildfire, spurring gains for all things AI.
Palantir was part of the AI revolution before it was fashionable, with more than two decades' worth of experience in the field. Palantir's management addressed the accelerating demand in its first quarter financial release. CEO Alex Karp pulled no punches, saying, "The depth of engagement with and demand for our new Artificial Intelligence Platform (AIP) is without precedent."
Palantir's shareholder letter provided additional details, saying, "The arrival of the latest large language models, which have provided the world with the first real hints of more generalizable forms of artificial intelligence, will transform enterprise software."
The company has been building technology for decades that is well positioned to profit from this secular tailwind. Karp said, "It has now become increasingly apparent that a platform that combines the capabilities of a foundational software architecture with those of the latest large language models is essential in order for the models to evolve into something of transformational value for large organizations." And Palantir spent years building that foundation.
Furthermore, he suggests enterprise companies are turning to Palantir in droves to harness the technology necessary to benefit from AI.
Now what
Bears will no doubt note that Palantir Technologies now sports a lofty valuation, selling for 59 times forward earnings and 12 times forward sales -- and they have a valid point. That said, if recent demand for AI is any indicator of what's in store for Palantir, the company could be on the verge of a growth spurt that could quickly close the gap between its valuation and its future prospects.
