Artificial intelligence (AI) has been around since the 1950s, but recent developments have taken the technology to the next level. The potential for productivity increases caught many by surprise, and has businesses racing to get their share. At the same time, investors have become entranced with the potential for profit, scooping up shares of any company specializing in AI.
One such company is Palantir Technologies (PLTR 3.73%). The company was thrown into the limelight when it went public in late 2020, but the data mining and AI specialist has been toiling away in relative obscurity for more than two decades. While Palantir's algorithms initially focused on intelligence applications for the U.S. government and its allies, the company has expanded its efforts to cover a broad cross-section of business data analytics and AI. When generative AI came of age, Palantir was there to answer the call.
Let's look at three reasons investors should be buying up shares of Palantir stock like there's no tomorrow.
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1. Palantir has a solid foundation and robust growth
Palantir long ago established itself as the go-to for U.S. government agencies in search of AI expertise. Its algorithms were originally designed to ferret out terrorists by finding patterns hidden among intelligence agency and law enforcement databases. Beyond those applications, however, Palantir has provided AI services to a diverse group of government bodies, including the Securities and Exchange Commission (SEC), Animal and Plant Health Inspection Service, Internal Revenue Service (IRS), Department of Veterans Affairs, and the Federal Aviation Administration (AFF), among many others.
Government spending can be unpredictable at best, but Palantir has since expanded into the private sector, providing data mining and AI services to enterprise-level businesses. This move was prescient. While government revenue grew 11% year over year in the fourth quarter, commercial revenue jumped 32%, and U.S. commercial revenue soared 70%. It's that last category that should have investors most excited, as Palantir is forecasting growth of at least 40% in 2024, growing to 24% of total revenue. This suggests that while Palantir's government business is still a critical part of its success, its commercial business is on track to take over as its biggest breadwinner.
2. Palantir's government business just got a shot of adrenaline
As the slower growing of Palantir's business segments, its government contracts have been limited by Palantir's designation as a "software" provider. However, a recent contract win suggests the company may be moving beyond its humble roots.
Palantir was recently selected by the U.S. Army to deliver 10 Tactical Intelligence Targeting Access Node (or TITAN) systems, which use sensor data and real-time AI analysis to pinpoint enemy targets. The contract wasn't nearly as important as Palantir's selection as the prime contractor. This marked the first such time a software provider was named as the lead in a hardware production contract, according to BofA analyst Mariana Perez Mora, ushering in "a new era of procurement."
This opens up a host of other opportunities in the defense sector.
3. The generative AI wildcard
Beyond Palantir's existing business opportunities is the wildcard represented by the vast and accelerating adoption of generative AI. Management saw the writing on the wall and quickly pivoted to meet the growing demand. Palantir's decades of experience in the field resulted in the Artificial Intelligence Platform (AIP), the company's home-grown generative AI offering.
CEO Alex Karp has previously stated that "demand for AIP is unlike anything we have seen in the past 20 years."
Palantir is capitalizing on the opportunity by holding boot camps. "These immersive, hands-on-keyboard sessions allow new and existing customers to build live alongside Palantir engineers, all working toward the common goal of deploying AI in operations," the company wrote in its fourth-quarter business update.
In October 2023, management had set an internal goal of executing 500 boot camps over the course of one year. Palantir has since "blown that goal out of the water," completing more than 560 boot camps across 465 organizations by early February.
By building these custom AI models side-by-side with customers, Palantir is going from "zero to use case in five days or less." This eliminates customer anxiety and confusion about what they're getting by not throwing them into the deep end to fend for themselves. This, in turn, helps increase demand for AIP.
