The godfather of AI is poised to take advantage as adoption of generative AI-infused software accelerates.
Artificial intelligence (AI) has gone viral since early last year, and it's easy to see why. This next-generation software can create original content, including text, video and images, with just a few gestures. Technology promises to revolutionize business by streamlining processes and increasing productivity.
As the primary manufacturer of advanced graphics processing units (GPUs) that provide the computing power that powers this important technology, Nvidia (NVDA 9.32%) Generative has been one of the early beneficiaries of the rapid adoption of AI. The company's revenue has grown more than 100% year-over-year for three consecutive quarters, and another quarter of similar growth is on track.
However, investors are starting to look beyond hardware to a wave of AI software adoption, and with good reason. According to a Bloomberg Intelligence forecast, sales of generative AI software are expected to reach $318 billion by 2032, up 6,260 percent from just $5 billion last year.
While Nvidia will undoubtedly continue to grow, another company is also well-positioned to benefit from the AI software revolution.
Image source: Getty Images.
The Godfather of AI Software
Palantir Technologies (PLTR -2.13%) First gained notoriety by providing AI software to the US government and its allies to help defeat terrorists before they strike. More recently, however, the company has focused its AI expertise and data analytics capability on helping businesses make data-driven decisions that lead to more successful outcomes.
Because it had decades of experience in the field, Palantir was able to quickly develop creative AI solutions as technology evolved. The fruit of this labor is its Artificial Intelligence Platform (AIP).
Many businesses would love to integrate AI into their operations, but just don't know how. Palantir is addressing this issue by holding AIP “bootcamps.” The company describes these as “in-depth, hands-on keyboard sessions.” [that] Allow new and existing customers to build live with Palantir engineers, all working toward the common goal of deploying AI across operations. It helps businesses “go from zero to use case in just one to five days.” Palantir further notes, “We have a growing backlog of AIP bootcamps due to high demand.”
In October, the company set a goal of hosting 500 AIP bootcamps in the coming year, but demand has been off the charts. In the first quarter alone, the company conducted 660 bootcamps, and the backlog continues to grow. The administration cited two instances where companies signed seven-figure deals days after completing bootcamps. The company previously noted that these bootcamps “significantly compress the sales cycle and accelerate new customer acquisition rates.”
It turns out that Palantir's bootcamp strategy is a winning one.
show me the money
The results are only beginning to show in the company's finances. In the first quarter, revenue rose 21% year over year to $634 million, and Palantir had its sixth consecutive quarter of profitability — but that only tells part of the story. US commercial revenue, which includes AIP, grew 40% year-over-year while customers in the segment grew 69%. Remaining deal revenue — the remaining value of contracts that have not yet been booked into revenue — rose 74 percent, suggesting growth will continue.
As a result, management raised its full-year forecast — now calling for revenue of $2.68 billion, or about a 20% increase over the midpoint of its guidance. Driven by strong and ongoing demand, management now expects full-year U.S. trading revenue of at least $661 million, up 45%. Based on strong demand, there is more to come.
A word on evaluation
Despite its rapid growth and huge opportunities for the company, Palantir stock won't appeal to every investor. It trades at 179 times earnings and 21 times sales — valuations that might raise eyebrows. However, those metrics fail to take into account the company's rapid growth. Its forward price/earnings-growth (PEG) ratio is less than 1, which is the benchmark for an undervalued stock.
Adoption of generative AI is just beginning, and Palantir has decades of AI experience to withstand the oncoming competition. Its strategy for bringing AI to the masses is absolutely brilliant and should continue to pay dividends from here. That's why Palantir stock is a buy.
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.