Palantir shows the AI revolution is for real

What happened

Yesterday Palantir Technologies Inc, a data intelligence and AI platform leader (and part of our portfolios), reported solid 4Q23 results ahead of expectations, with sales growing >20% YoY, and earnings doubling over the same period. The strong performance was driven by the Commercial sector, which represented between a fifth and a quarter of its business, with the US segment growing by more than 70% YoY over the quarter. 

The Government sector performed more in line, but also for this segment the underlying dynamics remain strong, driven by the needs of the U.S. Army to face multiple fronts of hot wars. The impact in terms of revenues and earnings will filter through in the coming quarters. 

As a result the guidance was a mixed bag with next quarter still uncertain, and an upward adjustment for the full-year. Nevertheless, the stock skyrocketed by over 30%. 

Impact on our Investment Case

As we mentioned in our 2024 Outlook, our belief is that the focal point of the AI revolution lies within integrated ML platforms.

The current complexity of deploying AI applications necessitates specialized skills and tools, an overtly recognized bottleneck. There is, therefore, a major opportunity ahead for platforms enabling easier and faster deployment of such applications, by notably bundling data pipelines and training capabilities within a unified and user-friendly framework.

And exactly this point was highlighted by Palantir's management during the earnings call, as they explained how their AI Platform (AIP, an AI-powered decision making tool) was able to seal a number of deals thanks to its capability to be deployed fast and across multiple use cases: "We are deploying AIP to implement hundreds of real tangible use cases in production for our customers [...] When combining LLMs with Foundry through AIP, the ability to deploy use cases becomes much more widely accessible, so the addressable market expands considerably."

All in all, businesses have spent 2023 identifying how they could and should use AI - now comes the time when they want to press the button and implement working solutions. 

Our Takeaway

We fully agree with Palantir's management assessment that this is still only the early stage of market expansion driven by the deployment of AI-based applications. As use-cases increase and prove how valuable AI can be, the market opportunity will similarly expand. 

The shift from the infrastructure build-out to the actual use through applications has only started. However, it will be a self-feeding loop that is bound to drive returns for investors. Infrastructure has reached the critical size to allow applications development, and the latter will require further infrastructure expansion.

Our AI & Robotics strategy focuses on this market shift and stands to profit from its development over time.