The rise of generative artificial intelligence (AI) like ChatGPT has served as a tailwind for the stock market throughout 2023. At the time of this writing, the Nasdaq Composite Index is up a whopping 35% year to date, largely thanks to tech companies identifying ways that AI can enhance their business. 

When companies reported first-quarter earnings a few months ago, it seemed like every big tech and growth stock focused on AI road maps. Subsequently, investors generally cheered this news, thereby propelling equities higher. Now, as second-quarter earnings season arrives, investors will see how much progress has been made on these AI ambitions.

The is especially the case for big-data analytics company Palantir Technologies (PLTR -0.02%). Since going public in 2020, Palantir's stock has been all over the place. The company has faced its share of negative investor sentiment with short-sellers labeling it as a consulting company masking itself as a tech firm, as well as some on Wall Street criticizing it for relying heavily on large government contracts that contribute to some lumpiness in its financial statements.

While some of these concerns hold merit, there are plenty of reasons to celebrate Palantir's business. But going into second-quarter earnings, all eyes should be on the company's latest innovation: its homegrown Artificial Intelligence Platform, dubbed AIP.

How does AI work?

AI is a multifaceted technology, and you likely encounter some form of it on a daily basis. For example, e-commerce companies such as Amazon use your browsing and purchase history to make algorithmic recommendations of other products you might be interested in -- a form of AI.

A more advanced version is a large language model (LLM), which allows users to type questions into a search bar and receive answers. Big tech companies such as Microsoft and Alphabet use LLMs in their search engines.

Although LLMs can be an efficient way to discover the answer to a question as opposed to doing tedious manual research, there are more crucial ways this technology can be helpful. Palantir has identified some of them, and it showcased what it has in store during a brief demo in tandem with its first-quarter results.

During the demo, Palantir simulated the impact that a hurricane might have on a factory. Its AIP was asked how the hurricane could affect distribution based on its location, and what the consequences might be if the manufacturer decides to shut it down. AIP was able to show the impact on customer orders, backlog, and revenue for the company should it make this decision.

Taking this a step further, AIP allowed the manufacturer to run a simulation in which the company decides to charter additional drivers before the hurricane and analyze how this would affect deliveries and costs.

Lastly, AIP's interface provided the ability to send these scenarios to executives to make quick decisions.

It might sound like playing a video game, but AIP's impact is far more serious. The demo showcased how mission-critical business decisions can be made by leveraging data and AI. The uses for this type of technology seem limitless.  

A person looking at a large screen plotting out possible scenarios.

Image source: Getty Images.

What does the company have to say about AI?

While it's challenging to assign an explicit value to AIP at the moment, Palantir's first-quarter results may shed some light on the new product. After the company released full-year 2022 earnings in February, investors could see that its full-year 2023 top-line guidance was between $2.180 billion and $2.230 billion.

But in the company's first-quarter earnings release, management raised its full-year revenue outlook to a range of $2.185 billion to $2.235 billion. Perhaps even more exciting is that Palantir posted a GAAP profit in the first quarter, and management believes Palantir will be profitable every quarter this year.

Following that latest earnings announcement, CEO Alex Karp discussed the company's progress in AI with Bloomberg, noting that Palantir's AI business is growing exponentially.

Is the stock a buy?

Although AIP is in its early days, initial demand trends appear strong. With that said, it will be some time before investors understand how big a contributor this product can be to the company. But since Palantir's first-quarter earnings report in early May, its stock has more than doubled.

In this hype-fueled environment, investors need to exercise patience and discipline. There is clearly strong momentum pushing the stock higher, and going into second-quarter earnings (expected in early August), all eyes will be on the progress of AIP. Hopefully, management will provide further details, but even if details remain slim, the earnings results and management outlook should allow investors to read between the lines.

All of these clues will indicate whether the company's products and services are in demand -- potentially fueled by AIP.