This Was the 1 Number Wall Street Had Its Eyes on in Palantir's Earnings

“Artificial intelligence” (AI) is Wall Street’s new favorite buzz word. But like all popular expressions that enter the mainstream lexicon, there now seems to be non-stop touting of AI-powered products and services everywhere you look. In particular, executives at technology companies are spurring investor enthusiasm by boasting about their AI capabilities.

When it comes to artificial intelligence (AI), many investors believe that the “Magnificent Seven” are the undisputed leaders. But while many megacap tech enterprises are contributing to the AI revolution, savvy investors understand that there are other options.

I see Palantir Technologies (PLTR -0.53%) as an exciting emerging major player among AI developers. Back in April, the company released its fourth major product: Palantir Artificial Intelligence Platform (AIP). But a couple of months following the release of AIP, a short report published by Edwin Dorsey labeled Palantir as an “AI imposter.”

While there is lots to digest from Palantir’s fourth-quarter earnings report, there is one figure in particular that Wall Street lasered in on. Let’s assess Palantir’s progress in artificial intelligence (AI) and determine if the bear argument is holding up.

Thinking outside the box

One of the hardest things to do for any business is coming up with marketing campaigns that actually drive measurable sales. Companies such as Apple and Coca-Cola spent millions over the years carefully crafting their respective brand images.

For Palantir, the company competes with a host of other enterprise software companies. From big tech stalwarts like Microsoft and IBM to growth businesses like Snowflake to unicorn start-ups like Databricks, Palantir operates among an intense competitive landscape.

Much of the attention surrounding AI in 2023 was centered on big tech companies and their investments in applications like ChatGPT and competing platforms. Given this dynamic, Palantir only had a couple of options to stand out among the crowd — some of which were businesses with far more robust balance sheets and financial flexibility.

Following the release of AIP, Palantir began hosting immersive seminars that it calls “boot camps”. During these sessions, prospective customers have the ability to test and demo Palantir’s product suite. The end goal is for companies to get a better understanding of Palantir’s capabilities, and how the company’s various platforms can play a role in use cases surrounding generative AI.

On the surface, this sounds like a unique lead generation strategy. But is it actually working, or is it just a marketing gimmick?

A business plan outlined on a chalk board.

Image Source: Getty Images

Why are the boot camps important?

Palantir’s boot camps have multiple purposes. First, the seminars actually serve as a funnel for bolstering the company’s customer pipeline. In other words, instead of producing expensive commercials or over-relying on digital marketing, Palantir has gotten the word out about its boot camps through more effective communication channels.

Specifically, since AIP’s launch, Palantir CEO Alex Karp and Chief Operating Officer (COO) Shyam Sankar have done countless interviews on television highlighting the effectiveness of attending a boot camp. The company also hosted a formal demo day during which AIP users explained to the public how the product is impacting their business. Lastly, management has provided thorough updates on the success of the boot camp strategy during the last several earnings calls.

During its fourth-quarter earnings discussion earlier this week, Karp explained that Palantir hosted over 500 boot camps in 2023 — compared to just 92 demo pilots in 2022. If Wall Street had any doubt about Palantir’s AI capabilities, the number of boot camps the company hosted since AIP’s launch (not even a full year) is undeniably impressive.

How can this help Palantir going forward?

Taking boot camp attendance one step further, investors should want to understand what the conversion rate of these prospective customers is. For the trailing 12-month period ended December 31, Palantir increased its customer count by 35%, with private sector clients growing 44%. Furthermore, during the fourth quarter Palantir closed 103 deals worth at least $1 million.

There are a couple of key items at play here. First, AIP’s release is strongly influencing demand for Palantir’s products, and it has helped fuel impressive customer acquisition. But more importantly, the boot camps have proven to be a mechanism by which Palantir can get customers in the door quickly.

As such, Palantir theoretically shouldn’t need to allocate as much capital to sales and marketing efforts to retain, upsell, or cross-sell these new customers. This dynamic is important, because it should ultimately lead to accelerated revenue and margins in the future, all while keeping costs at an appropriate level to provide Palantir with superior financial flexibility.

I see the boot camps as just the beginning of a phase of exponential growth for Palantir. While the company has swiftly bolstered its client roster, the full monetization potential of these new customers has yet to be recognized. Indeed, the AI race is going to be a long one. While select leaders may begin to emerge, it will likely be years before enterprises like Palantir really kick into high-gear growth fueled by AI.

For this reason, I think Palantir is very much an under-the-radar opportunity among a long list of AI names. Now looks like an incredible opportunity to scoop up shares as the company continues to make inroads in a heated market. Employing a dollar-cost averaging strategy and preparing to hold for the long-term ride should serve as a prudent approach to investing in Palantir.

Adam Spatacco has positions in Apple, Microsoft, and Palantir Technologies. The Motley Fool has positions in and recommends Apple, Microsoft, Palantir Technologies, and Snowflake. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.

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