With a valuation of $43 billion, Databricks is the seventh most valuable start-up in the world.It boasts an impressive roster of investors that include famed venture capital (VC) firms Andreessen Horowitz and Tiger Global, as well as some of the world's largest businesses, including Capital One and Nvidia.
Given Nvidia's commanding position in the hardware business, investors might wonder why it invested in data analytics provider Databricks. With big data representing an enormous opportunity in artificial intelligence (AI), could Nvidia's relationship with Databricks spell trouble for Palantir Technologies (PLTR 0.65%)?
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Key Data Points
What is Databricks?
Databricks is the most valuable software start-up globally, and second most valuable privately held AI company -- sitting behind OpenAI, the developer of ChatGPT.
Databricks develops a data intelligence platform built on lakehouse architecture that combines elements of data lakes and data warehousing. Essentially, the platform optimizes the performance of applications to provide business intelligence and real-time analytics, data warehousing, and AI.
Palantir develops enterprise software solutions that it sells to both the public and private sectors. While the specifics of each Palantir software suite differ, the common thread linking them together is that the company specializes in accumulating large sets of data from disparate systems.
More importantly, Palantir helps decision-makers visualize this data in a map called an ontology. From here, business leaders can search through data libraries and run sophisticated queries to help make more informed, efficient decisions.
Databricks offers generative AI applications that can help power predictive modeling and large language models (LLMs) through its Mosaic AI platform. While Databricks may not be a direct threat to Palantir, I see the company as a tangential competitor.
Image source: Getty Images.
Why is Nvidia interested in Databricks?
Nvidia is at the forefront of the AI narrative at the moment. However, unlike cloud computing companies such as Microsoft, Alphabet, and Amazon, Nvidia is more of a player in the hardware arena, given its commanding lead in the semiconductor space.
What investors may not realize is that Nvidia has quietly been making inroads in enterprise software. The company is an investor in voice-recognition company SoundHound AI, as well as robotics start-up Figure AI. Both of these areas present unique use cases for AI software applications.
AI-controlled speech recognition is an area that has garnered a lot of attention from the likes of Microsoft, Alphabet, Amazon, and even Apple. Considering that industry research suggests the addressable market for this technology could reach $50 billion by the end of the decade, it's not surprising to see Nvidia make a leap.
Another move Nvidia is making in relation to enterprise software is its partnership with Snowflake. Nvidia's NeMo software is being integrated with Snowflake's cloud-based data warehousing capabilities.
With Databricks and Snowflake earning the support of one of the most important AI leaders out there, some investors may be wondering if Palantir is in trouble.
Should Palantir investors be worried?
Although Nvidia's relationships with Databricks and Snowflake are interesting, I do not see them as a threat to Palantir. Broadly speaking, rising competition can be viewed as a positive. The reason is that innovation is often a byproduct of an increasingly intense competitive landscape.
When it comes to Palantir, the company is more than just a data integration or storage play. Palantir's real competitive advantage is that it spent nearly two decades developing -- and perfecting -- its software. Artificial intelligence (AI) is at the center of the company's intellectual property and is rooted in Palantir's DNA.
Of note is that the recent departure of Snowflake's CEO came at a time when AI was top of mind. I think this signals a lack of a clear AI vision, and while a partnership with Nvidia could be promising, it's likely too early to know for sure.
As it relates to Databricks, I think the relationship with Nvidia is much more clear. Databricks is an AI company, and on some level, it competes with Palantir. However, given the evolving AI landscape, I see multiple winners emerging in the long run.
Despite Databricks' support from Nvidia, Palantir has proven that it can win on its own. Given the company's revenue growth, sustained profits, and accelerated customer acquisition, combined with a tangible AI roadmap, I see Palantir as one of the best AI opportunities available to investors right now -- regardless of the competition.
