It's been about a year since the latest developments in generative artificial intelligence (AI) burst onto the scene, captivating both Main Street and Wall Street. These next-generation algorithms can do much more than their predecessors, significantly increasing productivity by designing original documents, summarizing data, writing and correcting computer code, and even creating original presentations from existing data.
Microsoft Co-founder and former CEO Bill Gates knows a thing or two about technology, and his views on AI are eye-opening: “AI is poised to completely change the way you use computers and upend the software industry.” , Gates recently remarked. He goes on to say that in the next five years, generative AI “agents” will handle many everyday tasks and do things that would have been unthinkable just a few years ago.
Conservative estimates put the economic value of the generative AI market at more than $1 trillion, and some even multiples of that. This could be a windfall for the companies and shareholders who stand to benefit from this trend. A company that has long been at the forefront of AI research is Palantir Technologies (NYSE:PLTR). As the godfather of AI, the company represents a convincing addition to any AI portfolio.
Image source: Getty Images.
Worked in the background for decades
Palantir Technologies is the brainchild of an entrepreneur and PayPal Co-founder Peter Thiel. After the Sept. 11 terrorist attacks, Thiel envisioned algorithms that could sift through the mountains of data that U.S. intelligence and law enforcement agencies collect and identify patterns that could detect terrorists' activities before they could strike. In fact, it was In-Q-Tel, the venture capital arm of the Central Intelligence Agency, that became one of Palantir's first investors.
It didn't take long for Palantir's AI systems to develop a large following within the intelligence community and expand to many other U.S. government agencies, including the Federal Bureau of Investigation, the National Security Agency and the Department of Defense, among many others.
The story goes on
However, the biggest opportunity came not from the government, but from the realization that these algorithms could be used just as effectively for data mining and business analytics services for companies.
A large and growing opportunity
What sets generative AI apart from previous branches of AI are the productivity gains mentioned above. Time is money, as the old saying goes, and companies of all sizes are eager to share in the resulting profits.
Although many provide estimates, no one knows how big the AI opportunities will ultimately be. According to Bloomberg Intelligence, generative AI could become a $1.3 trillion market by 2032. A much more optimistic assessment comes from Cathie Wood's Ark Investment Management, which estimates that AI software alone could lead to $13 trillion in additional spending by the end of the decade. Since the market is still in its infancy, no one knows for sure. What is clear is that an opportunity of this magnitude cannot be ignored.
Paint by numbers
Palantir's recent results paint a compelling picture. In the fourth quarter, Palantir's revenue of $608 million increased 20% year over year and 9% sequentially. Results were boosted by a 70% increase in U.S. commercial sales as demand for the company's generative AI-powered artificial intelligence (AIP) platform soared. As a result, Palantir generated its fifth consecutive quarter of earnings under generally accepted accounting principles, with adjusted earnings per share of $0.08. Management continued to forecast growth of at least 40% in its U.S. trading segment over the next 12 months.
For comparison, analysts' consensus estimates, which soared ahead of Palantir's financial release, were for revenue of $602.4 million and earnings per share of $0.08, which by any measure is a was a strong performance.
In Palantir's shareholder letter, management noted that projects that would have taken “weeks or months, if not longer” are now “up and running in just a few hours.” To keep up with demand, the company has conducted more than 500 “boot camps” for customers since AIP’s debut. “In these immersive, hands-on keyboarding sessions, participants can expect to go from zero to use case in just one to five days,” the company wrote.
Palantir also notes that demand is “unlike anything we’ve seen in two decades.”
A compelling opportunity
Palantir stock has been on a tear over the past year, gaining more than 250% since the start of 2023. Despite its meteoric rise, the stock remains remarkably cheap, with a price-earnings-growth ratio of around 1. the measure of an undervalued stock.
This price, combined with significant demand for its products and increasing revenues and profitability, illustrates why Palantir Technologies is well positioned to capitalize on this unique opportunity.
Should you invest $1,000 in Palantir Technologies now?
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Danny Vena has held positions at Microsoft, Palantir Technologies and PayPal. The Motley Fool has positions in and recommends Microsoft, Palantir Technologies and PayPal. The Motley Fool recommends the following options: long $395 January 2026 calls on Microsoft, short $405 January 2026 calls on Microsoft, and short $67.50 March 2024 calls on PayPal. The Motley Fool has a disclosure policy.
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