Over the past year, artificial intelligence (AI) has been the major undercurrent of the technology sector. A small collective of mega-cap tech companies known as the “Beautiful seven” have each made a series of splashy investments in many areas of the AI world.
Microsoft stands out from the rest of its Magnificent Seven peers, as the Windows developer kick-started the recent AI revolution after investing billions of dollars in OpenAI – the start-up behind ChatGPT.
This move sparked a scramble among tech companies looking to capitalize on AI in any way possible. There is one software company that has emerged as a legitimate competitor to big tech Palantir Technologies (NYSE:PLTR).
2023 was a milestone for Palantir everywhere, from acquiring new customers, accelerating revenue and increasing profits. Given its 190% share price rise over the past year, some investors may be wondering whether Palantir could become the next big opportunity in the tech sector.
Let's take a look at the specifics of Palantir's business and assess whether the company has the potential to become the next Microsoft.
Palantir is a strong company, but…
Palantir offers four different software suites: Apollo, Gotham, Foundry, and Artificial Intelligence Platform (AIP). The company commercializes its technology to the US military and Western allies, as well as to major private sector companies. Some of the company's notable clients include Lowe's, Sagittarius Aviation, Lennarand the US military.
All of Palantir's platforms are rooted in AI and each includes unique and specific features aimed at solving advanced problems. Essentially, Palantir helps companies untangle data trapped in disparate systems, allowing decision makers to ask complex questions and gain insight into business questions more easily.
While this sounds like a simple mission, the underlying technology that powers big data analytics is quite extensive. As such, Palantir can command a hefty price tag for its software. According to company filings, average revenue per customer over the past twelve months for Palantir's top 20 customers is $55 million.
Additionally, during the fourth quarter ended December 31, Palantir closed more than 100 new deals, 21 of which were worth at least $10 million.
Not surprisingly, Palantir's penetration of the enterprise software market has led to important strategic relationships. The company recently announced a partnership with Oracle in which that will happen migrating data from its AI platforms to Oracle's cloud infrastructure.
Given how early the AI story is, I think Palantir's best days are still far ahead. But does that necessarily make Palantir the next big disruptor?
…is this 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 multi-faceted behemoth in the technology sector.
Over the past few decades, Microsoft has made some smart moves to help it enter new markets. In 2016, the company acquired the professional networking site LinkedIn. Following the deal, Microsoft implemented a number of sales and marketing subscription services on the platform. This deal helped strengthen Microsoft's existing productivity applications in the Office Suite and gave the company a direct line into a specific part of the social media landscape.
More recently, Microsoft replenished its Xbox gaming segment by committing a whopping $75 billion to Activision Blizzard.
The overarching theme here is that Microsoft is one of the most diversified companies in the world. The ecosystem includes personal computing, cloud infrastructure, social media, gaming, software development, and now the newest frontier: AI.
The company's dominance in the technology arena has earned acclaim from investors over the years, and Microsoft's $3 trillion valuation reflects that.
Palantir, on the other hand, is currently purely a software developer. In my opinion, I don't see Palantir evolving in a similar way to Microsoft. For me, Palantir does one thing very well. On the other hand, Microsoft offers a wide variety of products and services for all kinds of end users.
This isn't to say I don't think Palantir can compete with Microsoft in AI. Palantir's results to date in the AI arms race are both impressive and encouraging, and I believe the company will continue to be a leader in this space.
But that said, I think investors should temper expectations regarding Palantir's ceiling and what the company can ultimately become. While I don't see Palantir as the next Microsoft, I do think it could be the next big name in enterprise software, on par with Oracle or Sales team.
Should You Invest $1,000 in Palantir Technologies Now?
Consider the following before purchasing shares in Palantir Technologies:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Palantir Technologies wasn't one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $537,557!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
*Stock Advisor returns April 22, 2024
Adam Spatacco has positions in Microsoft and Palantir Technologies. The Motley Fool holds positions in and recommends Lennar, Microsoft, Oracle, Palantir Technologies and Salesforce. The Motley Fool recommends Lowe's Companies and recommends the following options: long calls at $395 in January 2026 at Microsoft and short calls in January 2026 at $405 at Microsoft. The Motley Fool has one disclosure policy.
Is Palantir the next Microsoft? was originally published by The Motley Fool
