Over the last year, investors have taken a deep interest in artificial intelligence (AI) stocks. As the technology transforms the tech industry, the potential for game-changing productivity gains stoked optimism across the sector.

Perhaps no stock embodies this hope better than Palantir (PLTR 1.38%). While the company  long relied on AI to power its applications, its use of generative AI could transform its future. Here's how.

Palantir and generative AI

Palantir has become known for generating analytical insights from AI. It began in the national defense realm, and many credited its Gotham platform with helping the CIA find Osama bin Laden.

However, with a limited number of clients on the government side, Palantir created Foundry to apply its analytical abilities to the commercial sector, which has increased its addressable market.

Still, it is likely its Artificial Intelligence Platform (AIP) that will unlock most of the company's growth potential. AIP applies generative AI capabilities, using enterprise data, action, and logic to deliver insights.

The company demonstrated the power of AIP through its bootcamps, its five-day workshops that help prospective clients find use cases for AI.

Through the bootcamps, Palantir delivered workflows using customer data, a process that had previously taken between one and three months. These dramatically shortened timeframes amount to massive productivity gains. One potential client talked of having "100 use cases," while another boasted of "endless solutions" from this platform. Ultimately, this could deliver a considerable amount of increased business to Palantir.

As of the end of 2023, Palantir had delivered over 560 bootcamps within 465 organizations.

Where Palantir stands financially

The benefits of AIP do not seem to have delivered the revenue growth one might expect. Its 2023 revenue of $2.2 billion grew by just 17% annually. Also, the $2.66 billion in revenue forecasted for 2024 amounts to a 19% revenue gain if that prediction holds.

Still, the company earned a GAAP profit for five quarters now, and the net income attributable to shareholders of $210 million is well above the $374 million loss in the prior year. Also, analysts forecast 32% net income growth in 2024, which should help boost the stock price.

Admittedly, it has seen some of the benefits already, as the stock rose 175% over the last year. That increase has taken the forward P/E ratio to almost 70.

Nonetheless, as the benefits of AIP become better known, it is likely more organizations and governments will take advantage of the productivity gains it offers. That trend could make Palantir stock worth its premium price.

Consider Palantir

The power of Palantir's generative AI tool probably makes it a must-own stock. Admittedly, revenue growth seemed slow, given the power of its technology. Also, investors have taken notice and bid its shares up to a high valuation.

However, considering the massive productivity gains made possible by Palantir's software, it should give the company tremendous pricing power. Over time, that should bolster revenue and income levels, stoking rapid growth and making it one of the most critical and desired artificial intelligence stocks.