The era of artificial intelligence (AI) is undoubtedly upon us. It's still unlikely, however, that you're regularly using a consumer-facing AI tool like Google's Gemini or ChatGPT as anything other than a curious novelty. Such tech is seemingly more suited for the business world.
However, businesses aren't all embracing AI solutions yet either. Oh, they know they could. They may even recognize they'll need to dive into AI waters headfirst sooner than later. It's just not entirely clear to most corporate managers how they should proceed, nor is it clear which AI tools are worth investing in.
One company arguably stands more ready than any other to capitalize on this swell of demand for AI.
The rising AI tide
It's seemingly everywhere, and yet, it's not. Although a majority of adults living in the United States are now regular users of some sort of voice-powered tech, their interest mostly stops there. Only a minority is using generative artificial intelligence. Trust and usefulness were and are common concerns of would-be users.
Usage of AI among institutions is even more anemic. As The Motley Fool's own in-house research arm reports, only 6.8% of businesses located in the U.S. are using AI tools despite the availability of this technology. As the report explains, "AI use cases are still relatively narrow, and use on a large scale can be complex and expensive." The Boston Consulting Group recently quantified the challenge. Of the companies that have adopted some sort of AI tool, 74% are struggling to achieve a return on their investment.
We're arguably at a turning point though. Despite a limited profitable purpose thus far, consulting firm McKinsey reports that 92% of enterprises intend to increase their investments in AI over the coming three years. Getting these investments into action won't take nearly that long. The Motley Fool's research shows that business's AI usage rates are likely to grow from less than 7% now to 9.3% just within the next six months, jolting this sliver of the industry into a longer-term growth trend.
Indeed, industry research outfit Precedence Research believes this business-oriented piece of the AI market is set to grow at an annualized pace of nearly 16% through 2034. A company called Palantir Technologies (PLTR +1.21%) is poised to capture more than its fair share of this growth.
What's Palantir Technologies?
Never heard of it? If not, don't sweat it. Plenty of people haven't. Its (relatively) modest market capitalization of $200 billion and lack of consumer-facing products leave it off of most peoples' radars. Investors will want to make a point of putting it on their radars. Palantir represents the future of business-aligned AI. It helps institutions do something constructive with the digital data they've been piling up for years now.
It's easier said than done. In fact, while corporations and government agencies have been digging through this information for some time now, it's taken true AI-powered platforms to realize the original vision of what could be done with this data. As it turns out, third-party providers are better equipped to offer solutions than the data owners themselves are.
And this isn't some merely theoretical idea. Palantir has been earning revenue since 2010 even before AI as we know and understand it today came into existence. Its first contract was with bank JP Morgan Chase to help the bank identify fraud.
NASDAQ: PLTR
Key Data Points
What put the technology company on the proverbial map, however, is undoubtedly its partnership with the U.S. Department of Health and Human Services beginning in 2020 to help monitor and fight the spread of the virus that causes COVID-19. Palantir's' other impressive government contracts include a deal with the U.S. Army to help manage combat situational awareness and provide the U.S. Air Force with an AI-powered mission control platform.
It's not just for government agencies. Indeed, the crux of the opportunity ahead is rooted in the private sector where Palantir is already delivering. It's helping oil and gas outfit Kinder Morgan more cost-effectively manage its assets, for instance, while it's working with United Airlines to achieve a similar goal. Even fast food chain Wendy's is using Palantir's tech to optimize its supply chain. As the cliché goes, the sky's the limit.
Wherever that limit is, Palantir seems prepared to test it. Last year's top line of nearly $2.9 billion was up 29% year over year, and the company's calling for revenue growth of 31% this year. Analysts agree, although the analyst community adds that the company could maintain this pace of growth for at least a couple more years beyond this one.
Data source: StockAnalysis.com. Chart by author.
Although less than 7% of businesses currently utilize this sort of decision-making AI, more than 90% of them intend to invest even more in AI within the next three years. So this projected growth is hardly wishful thinking. The kicker: Palantir Technologies is also profitable, erasing any doubts that this business can at least be viable.
Not for the faint of heart
There are legitimate concerns, to be sure. Chief among them is this stock's valuation. Shares are currently priced at nearly 150 times this year's expected earnings. Even though the bottom line is growing, it's a steep climb to a more palatable valuation. Shares may not get there in a straight line.
This business also has lots of competition with deep pockets and a low bar to entry. For example, Alphabet, Microsoft, and IBM are not only capable of providing AI tools but are already offering similar solutions.
On the flip side, the decision-making AI platform business is one that appears to lend itself to focused specialists like Palantir. The only other pure play in this space is a company called BigBear.ai that's miles behind market-leading Palantir Technologies. However, the bulk of this industry's growth is still Palantir's to lose.
Just don't tarry if you're interested. The stock's 33% pullback from its February peak may not linger for very long.
