You Won't Believe What Billionaire Investor Chamath Palihapitiya Just Said About Palantir

Beyond the giants of big tech, one company that has emerged as a rising star in the artificial intelligence (AI) market is data analytics specialist Palantir Technologies (NYSE: PLTR). Its shares have gained about 140% year to date as they approach a new all-time high.

Bringing AI systems to the world of enterprise software has been a winning move for Palantir. Its revenue growth is accelerating, operating margins are expanding, and after years of burning cash, the business itself is now consistently profitable.

What isn't so clear, however, is what the road ahead could look like. During a recent episode of the "All-In" podcast, Silicon Valley billionaire Chamath Palihapitiya said that Palantir has yet to "really scale."

To me, that sounds like he thinks Palantir's growth story is just getting started.

Enterprise software is a tough game, and ...

The enterprise software world is brutal. There are now software-as-a-service (SaaS) tools for just about every organizational function.

Members of sales teams tend to keep track of their pipelines with customer relationship management (CRM) platforms such as Salesforce or Monday.com. Marketing campaigns can be monitored using HubSpot, while leading finance and accounting tools include those offered by Intuit or Oracle. Human resources departments might rely on Workday.

The point here is there are so many software platforms out there that finding the perfect combination of tools can be a time-consuming and daunting task for companies. Moreover, the first dirty secret of enterprise software is that companies' platforms often don't integrate well with the platforms of their peers. As a result, it can be difficult to use them to derive data-driven insights and build a more efficient and productive work environment.

This leads to the second dirty secret of enterprise software: Customers rarely switch SaaS platforms, instead opting to renew their contracts more often than not because going through the process of picking new providers and switching over will take too much time.

But according to Palihapitiya, this logjam of inefficiencies may present an opportunity for Palantir to generate exponential growth.

Image Source: Getty Images

... Palantir is bringing a new approach

Right now, enterprise software's newest shiny object is the large language model (LLM). In the wake of the launch of ChatGPT, a host of big tech companies followed suit. Alphabet has Gemini, Amazon has Claude, and Meta has Llama. And those are just the mainstream models -- there are loads more LLMs on the market.

So while LLMs were initially seen as technological breakthroughs, the rapid introduction of additional models has made them somewhat commoditized. It can be unclear what differentiates one LLM from another.

Well, in many cases, the answer to that question is data. Large enterprises tend to store various data structures across different platforms that do not layer on top of each other well. What many business leaders are beginning to realize is that using an LLM with data sources that aren't connected in a seamless way is often inefficient. This is where Palantir is really shaking things up.

How does Palantir scale from here?

At roughly the 36-minute mark in the embedded video below, David Sacks, another Silicon Valley legend, explains that Palantir's software has the ability to integrate with their customers' existing digital infrastructure.

E197! happy friday besties!

(0:00) bestie intros: in memoriam

(6:43) @openai's $150b valuation: bull and bear cases

(24:46) will ai hurt or help saas incumbents?

(40:41) implications from openai's for-profit conversion

(49:57) $meta's impressive new ar glasses: is this the... pic.twitter.com/PrE8Sl9iGU

-- The All-In Podcast (@theallinpod) September 27, 2024

But Palantir's ability to address the pain points of inefficient systems and workflows is just part of the equation. Following the explanation from Sacks, Palihapitiya put forth the idea that Palantir will be able to win new business based on competitive pricing structures when companies' contracts with other enterprise tool providers start coming up for renewal in a few years.

While corporations may not fully cancel their existing contracts with their other software vendors, business leaders might have more leverage at the negotiating table when it's time to renew their deals since AI was not part of the picture when many of those initial deals were signed.

But Palantir has been leveraging AI processes since it was founded two decades ago. It now has a chance to take advantage of the dynamic explained above to ink much larger deals in terms of dollar amounts and years committed.

I agree with Palihapitiya that Palantir has a lucrative opportunity to become the backbone of many companies' digital infrastructures. As AI continues to become a more integral part of the overall software narrative, Palantir stands at the doorstep of a new frontier of growth that could last for several years.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Adam Spatacco has positions in Alphabet, Amazon, Meta Platforms, and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Amazon, HubSpot, Intuit, Meta Platforms, Monday.com, Oracle, Palantir Technologies, Salesforce, and Workday. The Motley Fool has a disclosure policy.