Palantir and Tesla: Redefining the Economy.
Various mental models
Edited by Brian Birnbaum.
Palantir and Tesla are building a platform that promises to commoditise automation and redefine the American and global economy.
Many believe my long-term outlook on both Palantir and Tesla to be overly optimistic. I believe Palantir has 100X potential–from current prices–and that Tesla is going to be worth tens of trillions of dollars. Meaning, I expect their combined market caps will be worth more than the US GDP today, which is just over $27T, because they’re building platforms that will redefine and exponentially enlarge the global economy.
The economy consists of organizations that process information to optimize their actions. Each action aims to maximize the conversion rate of raw and/or scarce materials into goods and services that can be sold at maximum profit. The onset of information technologies over the past two decades has accelerated this process, effectively lowering the cost of sharing information to zero.
At the end of the day, humans still make decisions and act to create value. And humans have to eat and rest. These human conditions are a bottleneck for economic growth.
Palantir and Tesla are laying the groundwork to (again) exponentiate the rates at which information is processed and converted into value. The economy is, increasingly, a combination of horizontal and vertical Ontologies (the Ontology Grid, going forward). Explained another way, we’re creating exhaustive digital copies of horizontal and vertical components of the economy. The Ontology Grid promises to commoditize intelligence, much in the same way that we’ve commoditized energy over the past 150 years.
The graph below offers a simplified depiction of what the economy looks like when broken down into horizontal and vertical Ontologies.
For instance, autonomy is a horizontal component because it applies to all sectors. Autonomy represents a step function in our ability to translate insights we derive from processing information into action. Once Tesla trains an AI to navigate three dimensional space autonomously, that capability can be distributed via an API to any device on Earth at a marginal cost. However, in order for autonomy to be useful in specific use cases, like construction and healthcare, the AI model has to be trained further on a specialized dataset. This is where Palantir’s vertical Ontologies come in.
By providing customers across a growing range of industries with digital twins, Palantir is effectively creating exhaustive digital copies of industries. Digital twins contain the specialized data that will enable an autonomy AI to learn how to perform surgeries, build houses, or even fight on the battlefield. The Ontology Grid promises to automate any repeatable task.
The Ontology Grid is “invisibly encircling” businesses–and the noose is tightening. Much like the internet has disrupted the economy by concentrating power into a few intermediaries, Ontology infrastructure promises to gradually commoditize a growing volume of operations within businesses. It will collect exponentially increasing volumes of data, making it increasingly harder for companies not running on this grid to remain competitive.
As you can see in the graph below, world GDP has risen from $1.36T in 1960 to $105.44T in 2023–a 77X increase in six and a half decades. The Ontology Grid, I believe, will compress the next 77X to two or three decades. And because the Ontologies are driven by network effects, it’s highly likely that the key providers of this infrastructure will dominate in a winners-takes-all scenario.
Indeed, once Tesla powers autonomy across the US, it can then do so across Europe and other continents at an increasingly marginal cost. The same applies to Palantir, as it comes to sell valuable compute that’s pre-tailored to operational needs per function and industry.
The numbers involved here may appear impossibly large if not outright incomprehensible. But fundamentally the logic is simple. Data is to the 21st century what electricity has been to the 20th century. The economy mostly consists of people processing information to then make decisions and perform fundamentally repetitive actions. The above infrastructure abstracts that away and enables humans to focus on increasingly creative endeavours–also known as The Big Picture. With humans free to focus on higher-leverage functions, the economy grows at an exponentially accelerated rate.
The printing press disrupted the monks and their roles as scribes, but it ultimately led to the Renaissance. I believe the Ontology Grid offers humanity the chance at a second Renaissance.
There’s no guarantee that Palantir and Tesla go on to evolve into key providers of the Ontology grid. But I gauge the odds by assessing their respective proprietary data moats. As I teach students of my Tech Stock Goldmine course, staying competitive in the AI space requires control over proprietary data, which ultimately enables the training of proprietary AI models. Both are building increasingly irreplaceable proprietary data machines that will likely result in a winner-takes-all scenario.
Palantir and Tesla are currently years ahead of the competition. With every quarter that passes, their operations become increasingly harder to replicate. Tesla has deployed millions of cars (which are actually robots) that, each day, collect data and learn to navigate three-dimensional space. Palantir is proliferating its pace of distribution via AIP, installing its digital twins in an exponentially growing number of private companies. These first-mover advantages make it seem highly unlikely that either company will be overtaken.
Tesla only has to sell between one and two million robots per year to grow into a $10T market cap business, without taking the transportation business into account. By my fairly conservative estimate, if Palantir manages to 100X their commercial customer count and provide 10X value to each customer, even at a fraction of the cost they will become a multi-trillion dollar company. Though such customer growth appears massive, if Palantir indeed becomes foundational to the economy, this will appear tiny in hindsight.
As evidenced by recent Netflix deep dive, winners tend to drastically exceed expectations. Netflix is up 700X since IPO, by simply focusing on providing better entertainment to more people and an affordable cost. This operational algorithm has yielded exceptional results to date, but as I explain in my deep dive, this is only the beginning for them. Hundreds of millions of households around the planet are not on Netflix at present, which means that over the long term they still have well over a 10X runway from here.
As they continue to make their way into video games and other means of distributing their IP (intellectual property), they can increase ARPU (average revenue per user) non-linearly over the coming decade on top of adding a lot more users to the platform. This affords them an even bigger runway and I believe that a decade from now, folks will once look back in awe of the stock’s performance. Fundamentally, the main driver of Netflix’s performance is that it has exceptional organisational properties that it channels into a single task: delighting end consumers.
This is one of the main concepts that I teach in my Tech Stock Goldmine course: organisations that are more obsessed with their end customers than are their competitors tend to outperform over time. So long as Palantir’s and Tesla’s respective cultures remain top-notch, the above scenarios will likely only be the beginning for them. Tesla will likely go on to sell way more humanoid robots than just a few million per year and Palantir will probably come to power any organisation in the West, presenting far more potential upside over the coming decades than folks could reasonably believe at present.
Until next time!
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