AIP is Palantir's Path to $500/share.

Update

Jan 17, 2025

Edited by Brian Birnbaum and an update of my original Palantir deep dive.

AIP’s evolution is likely to increase Palantir’s operating margin way beyond expectations in the near future, driving the stock up meaningfully over the coming five years.

While much of the discussion about Palantir revolves around the stock price, a deep dive into the evolution of Palantir’s AIP (Artificial Intelligence Platform) suggests the controversy is irrelevant. By distilling higher order patterns, Palantir can currently reduce any third party software product to a few lines of code. As a result, AIP is now to code development what AWS has been to computing.

For example, say your company needs to manage support tickets in five different languages on a daily basis. Addressing this workflow via traditional methods requires a dedicated software platform and support specialists that speak five different languages. Palantir’s AIP all but eliminates these needs by embedding a couple of LLMs that interact without compromising any of your company’s operational data.

The first LLM converts support tickets from any language to English and vice versa. The second one reasons through the support tickets to then resolve them. This minimalist infrastructure is autonomous– just AI models running on their own. Encapsulating higher order patterns enables companies to both save costs and focus on higher-level endeavors. The result is higher cash flows and, more importantly, a new way of operating companies.

AIP has evolved to the point where someone with relatively basic coding skills can implement such a system and have it work across an entire organization in just a few hours. Previously, this would take months. And there’s no limit to how many LLMs one can embed–meaning there’s also no limit to automation. Generally, the idea of embedding AI models as such and seamlessly connecting them to an Ontology can render the whole enterprise software market obsolete.

The below presentation by Anirvan Mukherjee, Palantir’s Head of AI/ML Solutions, demonstrates the aforementioned capabilities. The main takeaway is that, by taking care of all security and infrastructure requirements in the background, AIP enables the creation of autonomous organizations. Months of coding have now been reduced to a few lines of code that equate to autonomous operations. Crucially, AIP achieves automation without leaving data vulnerable.

It’s important to note that the video is only three weeks old, which means the aforementioned capabilities have likely only just gone into production. Because they make AIP extremely easy to use, Palantir’s operating margins are set to explode in the coming quarters–faster, I believe, than most investors believe.

The presentation is somewhat technical, so I’ll break down key moments for you. AIP has been the primary driver of Palantir’s operating margin. As it gets better, Palantir’s software becomes easier to install and use, resulting in more sales. Every time I check in on AIP’s evolution I see exponential progress, and my view that Palantir’s top line and margins are set to tilt ever upper and to the right remains rock solid.

From 11:30 to 12:30 you will see Anirvan displaying the insights yielded by a model that he’s programmed on AIP to flag suspicious customer behavior for a hypothetical bank. In the previous few minutes of the lecture he shows how easy it is to program the model via both pro-code and low-code approaches. This is obviously a toy example, but you can extrapolate the implications and see that the need for hard coding and manual work has dropped off a cliff.

For the newly initiated, you’ll learn that this is only possible because Palantir has spent the past 20 years perfecting digital twins (what they refer to as the Ontology), which are an exhaustive digital copy of your company’s operations. With the entirety of your company’s data neatly stored, implementing (AIP) allows you to leverage all your data assets seamlessly. Competitors need to go through the same lengthy process in order to catch up and all of them are far behind.

From 22:39 to 24:10 Anirvan shows how you can create and turn an AI model into an agent that can autonomously perform actions on the Ontology. What’s striking here is that, even though I haven’t coded for more than three years now, using their tools to create an AI agent aimed at my goals appears easy and intuitive. The tremendous progress that Palantir has made toward rendering more easily deployable software is palpable.

At this rate of improvement, AIP is likely to become as easy to use as email. Once unwieldy and exclusive to the C-suite, email is now the first thing people set up when they start a new business, organization, or project. Setting up a digital twin will become unconsciously associated with starting a new company, translating into a scale of operations orders of magnitude larger than today.

Over the next decade I believe we are going to continue seeing Palantir’s operating margins and market cap tracking AIP’s ease of use, as we have since April 2023. Although Palantir’s market cap of $154B is quite generous at just over 56X sales, AIP’s current pace of evolution sets Palantir on a course for its yearly revenue to outpace its current market cap over the long term.

The numbers in the graph below are illustrative beyond Q3 2024, but they serve to distill the thesis, embedded in which is the idea that AIP will eventually yield network effects, whereby Palantir will not only provide digital twins but also connect them. Once your company runs on Palantir, along with all your providers and clients, why not connect the digital twins to speed up operations even further? I believe this will meaningfully increase Palantir’s revenue per customer in time.

Until next time!

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Disclosure

These are opinions only of the individual author. The contents of this piece do not contain investment advice and the information provided is for educational purposes only and no discussions constitute an offer to sell or the solicitation of an offer to buy any securities of any company. All content is purely subjective and you should do your own due diligence.

Antonio Linares makes no representation, warranty or undertaking, express or implied, as to the accuracy, reliability, completeness or reasonableness of the information contained in the piece. Any assumptions, opinions and estimates expressed in the piece constitute judgments of the author as of the date thereof and are subject to change without notice. Any projections contained in the Information are based on a number of assumptions as to market conditions and there can be no guarantee that any projected outcomes will be achieved. Antonio Linares does not accept any liability for any direct, consequential or other loss arising from reliance on the contents of this presentation. Antonio Linares is not acting as your financial, legal, accounting, tax or other adviser or in any fiduciary capacity.