Title: Could Palantir's Stock Eclipse Nvidia's Success?
Title: Could Palantir's Stock Eclipse Nvidia's Success?
It's no secret that investors are on the hunt for the next big winner, following in the footsteps of Nvidia's epic 2500% stock surge over the past five years. And with good reason – the tech giant has become a titan in the world of artificial intelligence (AI) and ranks among the largest companies globally.
Recently, while scrolling through a stock message board, I stumbled upon an investor asking which company would be the next Nvidia. The consensus answer? Palantir Technologies, or PLTR (-4.96%). This company has already been on an impressive roll, with its stock soaring among Wall Street's biggest winners this year.
So, let's break down what it would take for Palantir to become the next Nvidia. First, we need to define what that even means. Back in 2019, Nvidia's stock price hovered around $5.30, while today it's at around $138, translating to a substantial 26-fold increase. The massive tech giant now boasts a market cap of around $3.5 trillion.
Setting our sights on Palantir, the company finished 2022 at $6.42, and as of writing, it's trading at approximately $72. To reach the 'next Nvidia' status based on percentage gains, Palantir would need to climb to approximately $165 – an additional 130% increase.
However, if we're looking for the equivalent of Nvidia in terms of market cap, that would mean a 20-fold increase for Palantir, lifting its market cap to around $3 trillion.
Now, let's dig into why it might be possible for Palantir to attain this level of success.
Driving Force: Parabolic Revenue Growth
It's no secret that Palantir trades at a lofty valuation, currently boasting a forward price-to-sales ratio (P/S) of about 48 times next year's estimated earnings. Considering this, some might question whether the stock's growth will go parabolic in the years to come.
However, a closer look at Nvidia's journey reveals that such growth is indeed possible. After experiencing minimal revenue growth at the beginning of 2019, Nvidia's revenue skyrocketed by 123% for the following fiscal year. In the first nine months of 2020, that revenue growth increased to 135%.
Similarly, Palantir will need to see rapid revenue growth for an extended period if it wants to emulate Nvidia's success. To achieve this, the company will need to surpass its current valuation while maintaining or improving its projected 2024 sales of about $2.8 billion – still far below Nvidia's 2019 sales of $10.9 billion.
Palantir: The Next AI Mogul?
Palantir initially made waves within the U.S. government, earning its stripes by providing powerful data-gathering and pattern recognition software to combat terrorism. The software's ability to pull information from diverse sources and highlight connections not immediately obvious was its secret weapon.
Following a period of slower growth, the company did an about-face in 2024, thanks to its Artificial Intelligence Platform (AIP) gaining traction in the commercial sector. U.S. commercial customer growth surged 77% year-over-year, while revenue from these sectors jumped 54% to $179 million. Palantir attributed its commercial success to consistently strong AI demand.
But the company has also seen growth from its U.S. government customers, whose spending has increased despite a slowdown in 2022. While U.S. government revenue growth dipped to 14% in 2022, it rebounded by 40% during the last quarter of 2023.
Every department within the government became a spectator to the use of large language models (LLMs), contributing to the growth in government revenue for Palantir.
So, what sets Palantir apart from the pack? Unlike other companies that focus on creating the best AI models, Palantir aims to dominate the application and workflow layer. Its belief is that AI will truly take flight when the technology evolves to work seamlessly within existing systems.
Palantir's AI platform automates tasks by integrating AI agents that humans can't handle. This positioning makes the company a compelling player in the AI market, as it aims to become the go-to solution for integrating AI into day-to-day operations.
As Palantir transitions its prototype work into production, revenue growth is expected to climb, and the potential for exponential growth becomes a tangible possibility. With a net dollar retention rate of 118% in Q4 2023, the company is effectively retaining revenue from existing customers and expanding its base.
By focusing on the application and workflow layer, Palantir aims to ensure AI systems operate without hiccups, particularly in high-stakes environments. When AI technologies become a critical part of business operations, organizations can't afford unpredictable, inaccurate results. Palantir's ability to deliver predictable AI results without unnecessary hallucinations or lack of transparency might just give it the competitive edge it needs to rise above the competition.
While Palantir's financials are looking healthy and revenue growth is on the rise, it's worth noting that much of this growth is still confined to prototype work. However, as the company successfully transitions to full production, the sky's the limit.
In summary, Palantir's growth potential is undeniable, given its strong ties to government agencies, strategic partnerships, and its position as a leader in the data analytics market. Moreover, its focus on seamless AI integration for everyday operations makes it well-positioned to capitalize on the growing AI market and rival the meteoric success of companies like Nvidia.
To achieve the 'next Nvidia' status in terms of percentage gains, Palantir would need to increase its stock price by approximately 130%, reaching around $165. If we're looking for an equivalent of Nvidia in terms of market cap, Palantir would need to see a 20-fold increase, pushing its market cap to around $3 trillion.
Palantir's strong ties to government agencies, strategic partnerships, and its leading role in the data analytics market, coupled with its focus on seamless AI integration for everyday operations, position it well to capitalize on the growing AI market and potentially challenge Nvidia-like success.