Nvidia has emerged as the king of the AI space, but is there room for multiple players to rise to the top?
For much of the past two years, big tech has dominated storylines revolving around artificial intelligence (AI). Members of the “Magnificent Seven” – Microsoft, Amazon, and Alphabet – have invested billions of dollars in companies such as ChatGPT’s creator OpenAI and perhaps its biggest rival, Anthropic.
On the other hand, there is Tesla, the brainchild of Elon Musk, which is trying to bring self-driving cars and humanoid robots to the masses. And of course, virtually none of the generative AI applications these mega-cap tech companies are developing would be possible without the help of Nvidia’s graphics processing units (GPUs) and proprietary software.
If you have read my previous articles, you know that I tend to use November 30, 2022 as the starting point for the AI revolution. To add some context, that’s the day ChatGPT went public. Since then, Nvidia has significantly outperformed each of its competitors in the Magnificent Seven, with gains of over 700% as of market close on December 12, 2024.
Frankly, this is Nvidia’s world and everyone else is just living in it. But smart investors understand that they can match the performance of even the biggest behemoths. Beyond the big tech companies, one company that maintains star status in the AI space is Palantir Technologies. (PLTR -0.42%).
Palantir has proven it can compete with large incumbents in the enterprise software world, and some investors, including billionaire entrepreneur Chamath Palihapitiya, argue that the company has not yet begun to scale. are.
With so many possibilities on the horizon, could Palantir be the next Nvidia? Let’s dig in and find out.
How Palantir gained attention in the AI space
During Palantir’s Q3 earnings call, CEO Alex Karp made some interesting remarks about how data integration is the most important variable when developing AI-powered services.
Karp says, “The experts who write about these things believe that the product, or LLM, is the valuable aspect of this, and that the actual asset, or how you manage the product, is the real value. It seems like it is.”
Karp’s point here is that large language models (LLMs) are more of a commodity than a proprietary technology. Alphabet’s Gemini, Amazon’s Claude, Meta’s Llama, and ChatGPT all offer unique features, but the average user can’t really tell the difference between these platforms. In Karp’s view, the real value proposition is how data is fed into the LLM through support for software integration. And that’s where he believes Palantir has an advantage.
In April 2023, Palantir released its fourth major product called Artificial Intelligence Platform (AIP). The table below includes some key performance indicators that demonstrate the impact AIP is having on Palantir.
Metrics Q3 2023 Q4 2023 Q2 2024 Q3 2024 Revenue Growth (% YoY) 17% 20% 21% 27% 30% Number of Customers 453 497 554 593 629 Adjusted Gross Profit Rate 82% 84% 83% 83% 82% Adjusted Free Cash Flow $140.8 million $304.7 million $148.6 million $148.7 million $434.5 million
Data source: Palantir Investor Relations.
The advent of AIP was transformative for Palantir. The company’s growing customer roster has led to accelerating revenue quarter after quarter, and margins have remained at healthy levels. The combination of revenue growth and high profit margins provides Palantir with robust financial flexibility in the form of consistent free cash flow.
No matter how you look at it, Palantir seems unstoppable. However, despite this impressive performance, more analysis is needed before classifying the company as a company with potential like Nvidia.
Image source: Getty Images.
Will Palantir be the next Nvidia?
When comparing companies to Nvidia, there’s more to it than just valuation and stock price.
Nvidia’s emergence as the biggest player in AI isn’t just due to its GPU and compute networking business. In fact, that’s how the business actually works. Nvidia’s hardware (such as GPUs) is tightly integrated with its Compute Unified Device Architecture (CUDA) software platform.
Combining Nvidia’s GPU layer on top of CUDA essentially creates a “lock-in” effect with the customer, effectively owning the AI stack within the customer’s ecosystem. This dynamic has helped Nvidia capture an estimated 90% market share and complete ownership of AI inference and training protocols.
Additionally, with spending on AI infrastructure predicted to exceed $1 trillion over the next three years, Nvidia’s firm grasp of the market will allow it to continue gaining market share over time and its The profits will be even greater.
When it comes to enterprise software, Palantir doesn’t have the potential to match Nvidia. In my eyes, GPUs and data centers are “must-haves” for generative AI development. In contrast, software and data analytics are more of a “nice-to-have” field.
Although LLM is important in data processing and makes LLM more useful, it is questionable whether enterprise software is truly essential. Additionally, with intense competition from companies like Snowflake, Databricks, and many others, I think Palantir may struggle to create the same “lock-in” dynamics that Nvidia has had success with.
While I respect Palantir’s management team and am proud to own stock, I cannot say that this company will be the next Nvidia.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Adam Spatacco has worked at Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, Snowflake, and Tesla. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
