Many experts believe the latest developments in artificial intelligence (AI) will profoundly impact the technology and business landscapes. These advanced systems can generate original content, streamline time-consuming processes, and automate procedures — all with a few simple commands. This, in turn, promises to increase productivity and save money, which has companies racing to adopt the next-generation algorithms.

One of the most obvious beneficiaries of this trend is Nvidia (NASDAQ: NVDA). The company’s graphics processing units (GPUs) supply the computational horsepower required to process AI training and inference. However, the investing community is beginning to look beyond the first phase of AI adoption (hardware) to what comes next, which will invariably be AI-infused software. It’s estimated that generative AI software sales could soar as much as 18,647% to $280 billion by 2032, according to Bloomberg Intelligence.

While there’s little doubt that Nvidia will continue to prosper from its early adoption of AI, another company has decades of experience in the field and is poised to profit as the tidal wave of AI software adoption commences.

Developers looking at lines of AI code on a computer screen.

Image source: Getty Images.

An AI pioneer

Palantir Technologies (NYSE: PLTR) established itself as one of the early leaders in the AI revolution more than two decades ago. The company partnered with U.S. government agencies and its allies to develop AI software tools to aid in the war on terror. Its AI-powered data mining systems connected the dots between seemingly unrelated bits of information to helped flush out terrorists. In recent years Palantir has focused its attention on the enterprise sector, providing companies with actionable information to make data-driven decisions.

With decades of experience in the field, Palantir was able to pivot quickly and develop state-of-the-art generative AI tools to help businesses succeed. The company’s latest brainchild is its Artificial Intelligence Platform (AIP), which provides users with keen insight to solve everyday business dilemmas.

One Palantir demo video shows the impact of shuttering a production line in the face of an oncoming hurricane. AIP provides suggestions regarding which orders to accelerate, delay, or cancel, which orders can be rerouted to other distribution centers, and how those decisions will affect backlogs and the associated sales. It can also estimate the financial impact of hiring additional trucks to accelerate high-priority deliveries before the storm hits, assessing how this will affect profits.

Most businesses would jump at the opportunity to deploy tools with those capabilities, but the complexity alone would be enough to confound all but the most technologically savvy executives. Palantir addressed the issue by staging AIP boot camps. Developers and executives alike can attend these hands-on sessions, allowing them to build sophisticated applications alongside Palantir engineers and building real-world, company-specific solutions.

This strategy has been wildly successful, helping Palantir increase its U.S. commercial customer count by 69% year over year and 19% sequentially in the first quarter. This was largely thanks to AIP bootcamps and the resulting accelerated deal volume.

This helps illustrate the vast potential of Palantir’s boot camp strategy.

The proof is in the pudding

The results have only just begun to impact the company’s financial results. In the first quarter, revenue of $634 million grew 21% year over year and 4% quarter over year, resulting in Palantir’s sixth consecutive quarter of profitability. U.S. commercial revenue, which includes AIP, grew 40% year over year while customers for the segment grew 69%. Remaining deal revenue (RDV), or the remaining value of contracts not yet recorded as revenue, grew 74%.

Management expects the company’s growth streak to continue. Palantir increased its full-year outlook and is now expecting revenue of $2.68 billion, representing growth of 20% at the midpoint of its guidance. Perhaps more telling, however, is the expected strong showing from U.S. commercial revenue, which is expected to clock in at least $661 million, an increase of 45%. That’s up compared to its guidance of 40% growth issued just last quarter. This suggests there’s continuing strong demand for AIP boot camps.

Every rose has its thorns

The company’s rapid growth and ties to AI aside, some investors will be put off by Palantir’s valuation, which is understandable — but looks can be deceiving. The stock currently trades for 211 times earnings and 25 times sales, which is enough to make any value investors run for cover. However, rapid growth tends to skew the most commonly used valuation metrics. However, a more useful measure in this case is the forward price/earnings-to-growth (PEG) ratio, which clocks in at 0.79, when anything less than 1 indicates an undervalued stock.

Generative AI is still in the early stages of adoption, and the resulting rollout could take years to accomplish. Palantir is poised to be an early winner in the next phase of the AI revolution thanks to its decades of expertise and brilliant go-to-market strategy.

That’s why Palantir stock is a buy.

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Danny Vena has positions in Nvidia and Palantir Technologies. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.

Generative AI Software Sales Could Soar 18,647% by 2032. 1 Unstoppable Artificial Intelligence (AI) Stock to Buy Before They Do (Hint: It’s Not Nvidia) was originally published by The Motley Fool

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