I have a problem with the chipmaker — but it’s a high-class problem.
First, let’s address the elephant in the room: It’s highly unlikely that investors, least of all me, are going to forget Nvidia. The company has forged a path years in the making and has become the gold standard for graphics processing units (GPUs) used to underpin artificial intelligence (AI). In fact, I am as bullish on the company and its future as I have ever been, and I continue to believe the company has a bright future.
So, why would I “forget Nvidia” and double down on another AI stock instead? It comes down to portfolio management. I began accumulating Nvidia shares more than six years ago and continued adding to my position until earlier this year. Nvidia stock has gained 800% since early last year (as of this writing) and more than 3,300% over the past five years.
As a result of the stock’s parabolic move, Nvidia is now one of the dominant stocks in my portfolio. It has become a 10-bagger and now represents more than 12% of my total holdings. From here on out, I expect Nvidia to do the heavy lifting, and I don’t need to add any more capital to a stock that already represents so much of my portfolio.
For investors looking for another stock with significant potential, I recommend taking a look at Palantir Technologies (PLTR -6.73%). I’ve owned the stock for some time, but earlier this week, I more than doubled my position in this AI pioneer. Here’s why.
Image source: Getty Images.
AI before AI went viral
Investors might not know that Palantir has a long history of developing AI and has been doing so long before the technology went viral last year. The company was founded more than 20 years ago with the idea that AI could help the U.S. intelligence community and our allies make better use of existing data.
Intelligence agencies had reams of data but no way to extract the most useful and important tidbits. Palantir developed sophisticated algorithms and data mining solutions that could follow the trail of breadcrumbs left by aspiring terrorists and piece together details to form a picture that might otherwise be missed.
Palantir serves a broad cross-section of the U.S. intelligence and law enforcement communities, including the Federal Bureau of Investigation (FBI), Central Intelligence Agency (CIA), Department of Homeland Security (DHS), and National Security Agency (NSA), but that’s just the beginning. It also works with the Centers for Disease Control and Prevention (CDC), various branches of the U.S. military, the National Center for Missing and Exploited Children, and many more.
Once Palantir had established itself with government agencies, it turned its attention to enterprise businesses, as its data mining and AI solutions were just as useful to corporations. This broad client base and range of experience give Palantir an AI pedigree that’s hard to match.
Ready to strike
Palantir’s vast experience in the field enabled it to pounce when advancements in generative AI burst onto the scene last year. The company was already providing data mining and analytics services to corporate customers, sifting through mounds of information and providing actionable intelligence.
Beyond its existing services, Palantir quickly developed its artificial intelligence platform (AIP), which “powers real-time, AI-driven decision-making.” For example, AIP can scan through reams of sales data to prioritize customers most likely to buy. Another example provided by Palantir illustrates how AIP helps a manufacturer in the path of an oncoming hurricane decide which orders to speed up, cancel, or delay before the storm hits and the resulting financial impact of those decisions.
A great many businesses would love to harness the power of AI but simply don’t know where to start. For those companies, Palantir devised the AIP Bootcamp. “These immersive, hands-on-keyboard sessions allow new and existing customers to build live alongside Palantir engineers, all working toward the common goal of deploying AI in operations,” the company said.
Demand has been off the charts, and the success of these workshops has been phenomenal, leading to huge contract wins. Chief Revenue Officer Ryan Taylor explained:
As one example, a leading utility company signed a seven-figure deal just five days after completing the boot camp. Another customer immediately signed a paid engagement after just one day of their multi-day boot camp and then converted to a seven-figure deal three weeks later.
Palantir has seen a big uplift in its U.S. commercial revenue, which grew 70% and 40% year over year in the fourth and first quarters, respectively. The company can barely keep up with the surging demand for its boot camps, leading to more robust business results.
A bit of context
As I pointed out at the start, I still believe Nvidia has a long road ahead. That said, the opportunity represented by AI software is intriguing. The market is expected to grow from $1.49 billion in 2022 to $280 billion by 2032, or a total growth of 18,647%. Palantir is one of just a few companies with the resources and experience to tap into that opportunity right now while the competition is left scrambling.
Palantir recently delivered its sixth consecutive quarter of profitability. The most commonly used valuation metrics suggest the stock is overpriced at 212 times earnings and 25 times sales, but those metrics fail to take into account the company’s impressive growth rate. When measured using the price/earnings-to-growth (PEG) ratio, Palantir’s multiple clocks in at less than 1, the standard for an undervalued stock.
These aren’t just empty words. I put my money where my mouth is and doubled down on my position in Palantir Technologies. Because, in my book, it’s a compelling opportunity.
