Not long ago, Ark Investment Management’s CEO, Cathie Wood, engaged in a podcast hosted by former NBA stars Andre Iguodala and Evan Turner. While Iguodala is renowned for his basketball prowess, his off-court venture as a start-up investor is equally impressive.
During the podcast, Wood delved into the core themes underpinning the artificial intelligence (AI) domain. Among the rising stars in AI technology stands the big data analytics company Palantir Technologies (NYSE: PLTR).
Wood holds a substantial stake in Palantir through her exchange-traded funds (ETFs). In her discourse, she floated the notion that Palantir could emerge as one of the premier AI entities globally, potentially challenging Microsoft (NASDAQ: MSFT).
Let’s explore why Wood’s optimism is well-founded, and how Palantir might evolve into a lucrative investment prospect within the AI sphere.
Palantir’s Innovative Strategies Bear Fruit
The spotlight in 2023 was snatched by big tech. Microsoft initiated the AI revolution by injecting billions into ChatGPT developer OpenAI. Not to be outdone, Alphabet and Amazon swiftly jumped in, each investing in a rival platform christened Anthropic. Additionally, chip giant Nvidia backed the world’s most valuable privately held software start-up, Databricks.
Amidst this fervor in high-profile AI ventures, it was easy for investors to overlook Palantir’s endeavors. In April of last year, the company launched its fourth software application: the Palantir Artificial Intelligence Platform (AIP).
To commercialize this innovation in a cost-effective manner, Palantir initiated immersive seminars dubbed bootcamps. These sessions provide potential clients with a hands-on experience of Palantir’s suite of products, enabling them to envisage a use case revolving around AI.
This creative lead generation strategy has proven incredibly effective. By demonstrating to potential customers how Palantir can enhance their AI aspirations, the company has witnessed a surge in client acquisitions.
In 2023, Palantir expanded its customer base by an impressive 35% annually. Of greater significance, its commercial clientele surged by 44%. This is crucial, as skeptics had cast doubts on Palantir’s ability to transition beyond its established government clientele and tap into commercial enterprises.
Image source: Getty Images.
Microsoft’s Enormity Versus Palantir’s Agility
Microsoft’s primary focus seems fixed on toppling Amazon as the cloud computing champion, banking on extracting more value through ChatGPT. While this might not directly threaten Palantir, it is imprudent to assume that Palantir enjoys an impenetrable economic moat.
Palantir contends with formidable rivals, with Microsoft’s Fabric software platform appearing as a principal adversary.
The paramount risk hovering over Palantir presently revolves around its capacity to sustain its upward trajectory. Microsoft, a colossus in comparison, boasts a larger scale, diverse operations, and a more substantial financial clout.
Palantir’s Resilience and Financial Performance
The surge in popularity of bootcamps has spurred Palantir’s revenue growth. Moreover, a subtle benefit of these seminars is their role in keeping sales and marketing costs relatively contained.
The positive momentum transcends sales, extending to profits and free cash flow. Palantir has recorded positive net income according to generally accepted accounting principles (GAAP) for five consecutive quarters.
Despite intense competition, I harbor no concerns for Palantir. In fact, I regard the rivalry with Microsoft as catalyzing further innovation in the long haul.
Trading at a steep price-to-sales (P/S) ratio of 25.3, Palantir’s stock seems lofty. Nonetheless, considering the stock hovers at about 35% below its historical peak, one can argue that the valuation is merely readjusting from prior lows.
Given Palantir’s commitment to empowering clients to unearth data-driven insights for astute, impactful decisions at the enterprise level across diverse sectors, I perceive it as a more potent AI platform compared to Microsoft.
In essence, AI constitutes just one facet of Microsoft’s sprawling conglomerate, which encompasses gaming, personal computing, and more. Conversely, AI is deeply ingrained in Palantir’s DNA, underpinning its relentless pursuit of AI progress.
While Microsoft’s scale and brand prominence warrant acknowledgment, the horizon appears bright for Palantir on a long-term trajectory. Hence, I deem Palantir’s premium valuation as justified, foretelling considerable upside potential.
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John Mackey, former CEO of Whole Foods Market and an Amazon subsidiary, sits on The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, also serves on The Motley Fool’s board of directors. Adam Spatacco has vested interests in Alphabet, Amazon, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool holds positions in and endorses Alphabet, Amazon, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool advocates for the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool abides by a strict disclosure policy.
The thoughts and sentiments articulated herein solely reflect the perspective of the author and may not necessarily mirror those of Nasdaq, Inc.
