Over the last year or so artificial intelligence (AI) has been the main undercurrent of the technology sector. A small collective of megacap tech enterprises known as the “Magnificent Seven” have each made a series of splashy investments across many areas of the AI realm.
Microsoft sticks out from the rest of its Magnificent Seven peers considering the Windows developer kicked off the recent AI revolution following a multibillion-dollar investment in OpenAI — the start-up behind ChatGPT.
Indeed, this move sparked a scramble among technology companies looking to capitalize on AI in any way possible. One software business that has emerged as a legitimate competitor to big tech is Palantir Technologies (NYSE: PLTR).
2023 was a milestone year for Palantir all around — from new customer acquisition, accelerating revenue, and rising profits. Given a 190% surge in share price over the last year, some investors might be wondering if Palantir could become the next big opportunity in tech.
Let’s dive into the specifics of Palantir’s business and assess if the company has the potential to be the next Microsoft.
Palantir is a strong business, but…
Palantir offers four different software suites: Apollo, Gotham, Foundry, and Artificial Intelligence Platform (AIP). The company commercializes its technology to the U.S. military and Western allies, as well as large enterprises in the private sector. Some of the company’s notable customers include Lowe’s, Archer Aviation, Lennar, and the U.S. Army.
All of Palantir’s platforms are rooted in AI, with each containing unique and specific features aimed at solving sophisticated problems. In essence, Palantir helps businesses wrangle data that is trapped in disparate systems, allowing decision-makers to run complex queries and more easily obtain insights on business questions.
While this sounds like a straightforward mission, the underlying technology powering big data analytics is quite elaborate. As such, Palantir is able to command a hefty price tag for its software. According to the company’s filings, the average trailing-12-month revenue per customer for Palantir’s top 20 clients is $55 million.
Moreover, during the fourth quarter, ended Dec. 31, Palantir closed over 100 new deals — with 21 of them being worth at least $10 million.
It’s not surprising that Palantir’s penetration in the enterprise software market has led to important strategic relationships. Recently, the company announced a partnership with Oracle in which it will migrate data from its AI platforms to Oracle’s cloud infrastructure.
Given how early the AI narrative is, I think Palantir’s best days are very much ahead. However, does that necessarily make Palantir the next big disruptor?
…is it the next Microsoft?
Microsoft is one of the most innovative companies of all time. The Windows operating system completely revolutionized personal computing in the modern era and paved the way for Microsoft to become a multifaceted behemoth in the technology sector.
Over the last several decades, Microsoft has made a number of savvy moves to help enter new markets. In 2016, the company acquired professional networking site LinkedIn. Following the deal, Microsoft implemented a number of sales and marketing subscription services into the platform. This deal helped bolster Microsoft’s existing productivity applications in the Office Suite, as well as give the company a direct line into a specific pocket of the social media landscape.
More recently, Microsoft complemented its Xbox gaming segment by dolling out a whopping $75 billion for Activision Blizzard.
The overarching theme here is that Microsoft is one of the most diversified businesses in the world. Its ecosystem spans personal computing, cloud infrastructure, social media, gaming, software development, and now its newest frontier — AI.
The company’s dominance throughout the tech arena has garnered cheers from investors over the years, and Microsoft’s $3 trillion valuation reflects that.
By contrast, Palantir is purely a software developer right now. In my opinion, I do not see Palantir evolving in a similar way as Microsoft. To me, Palantir does one thing extremely well. On the other hand, Microsoft offers a host of different products and services for all sorts of end users.
This isn’t to say that I don’t think Palantir can compete with Microsoft on the AI front. Palantir’s results so far in the AI arms race are equal parts impressive and encouraging, and I think the company will remain a leader in the space.
But with that said, I think investors should temper expectations regarding Palantir’s ceiling and what the business can ultimately become. While I don’t see Palantir as the next Microsoft, I do think it could become the next big name in enterprise software — akin to Oracle or Salesforce.
Should you invest $1,000 in Palantir Technologies right now?
Before you buy stock in Palantir Technologies, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Palantir Technologies wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $537,557!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns as of April 22, 2024
Adam Spatacco has positions in Microsoft and Palantir Technologies. The Motley Fool has positions in and recommends Lennar, Microsoft, Oracle, Palantir Technologies, and Salesforce. The Motley Fool recommends Lowe’s Companies and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Is Palantir the Next Microsoft? was originally published by The Motley Fool
