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Palantir’s growing influence in the AI software market suggests it has the potential to become the Nvidia of this sector.
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The company’s customer base is growing rapidly, which is not surprising as it is considered by third parties as the leading AI software platform.
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There are concerns about Palantir’s valuation, but its growth potential over the next five years suggests more upside potential can be realized.
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Nvidia (NASDAQ: NVDA) is a pioneer in the field of artificial intelligence (AI). That’s not surprising, since the spread of this technology would not have been possible without the chip systems and coding architecture, which allowed developers to train and develop large language models (LLMs) and build inference applications.
What’s worth mentioning is that Nvidia has become the go-to player in the AI chip market. The company retains a dominant position in this segment even after three years and controls an estimated 85% to 90% of this market. That’s pretty impressive when you consider that several companies have tried to grab Nvidia’s share of this market over the past three years, but they haven’t been all that successful.
There are several reasons why this has been the case. Nvidia exerts tremendous control over the AI chip supply chain; the CUDA programming platform is the go-to platform for developers due to its fast processing, efficiency and fame in the developer community; and major hyperscalers and AI companies rely on its chips to handle massive AI workloads in data centers thanks to the technological lead it has enjoyed over its rivals.
Palantir Technologies (NASDAQ:PLTR) appears to be using a similar playbook in the generative AI software market. Let’s take a look at the reasons why this company will likely have its Nvidia moment soon.
Just as Nvidia is the ideal hardware chip supplier for anyone looking to train and run AI models and applications, Palantir is gradually establishing a similar position in the AI software market. This is evident from the rapid adoption of the company’s Artificial Intelligence Platform (AIP), which was launched by the company in April 2023.
Palantir has seen a significant jump in its customer base and contract size since launching this platform. For example, Palantir’s total customer base rose 34% year-over-year in the third quarter of 2023, just after the launch of AIP. The company signed $830 million in contracts and signed twelve deals worth $10 million or more in that quarter.
All of these metrics have increased impressively thanks to AIP adoption. Palantir’s total customer base rose 45% last quarter, signing 53 deals worth $10 million or more. Additionally, Palantir signed $2.8 billion in new contracts in the third quarter, a whopping 151% increase from the same period a year ago. These numbers make it clear that Palantir’s AIP has gained tremendous traction. It won’t be wrong to say that it seems poised to become the Nvidia of AI software.
That’s because, just as Nvidia’s AI chips are technologically superior to rivals, allowing customers to train and deploy AI models at a lower cost compared to competing chips, Palantir’s AIP appears to be the best offering in the AI software platform industry. The company has regularly been ranked as the No. 1 provider of AI and machine learning (ML) software solutions in recent years.
This explains why it is now attracting customers at a stronger pace after the release of AIP. Additionally, customers deploying AIP are expanding the use of this platform across their operations due to the productivity gains they are witnessing. As a result, it won’t be surprising to see Palantir become a more influential player in the fast-growing AI software market.
According to a third-party estimate, the AI software platform market is expected to generate just over $18 billion in revenue by 2025. Palantir expects revenue of $4.4 billion this year, which would be a 53% increase over last year. The important thing to note is that Palantir’s estimated 2025 revenue suggests it could capture just over 24% of the AI software platform market this year, based on the $18 billion market size mentioned above.
Furthermore, the company’s revenue and contract value are growing at a much faster pace than the 39% annual growth rate that the AI software platform market is expected to achieve. As such, there is a good chance that Palantir will capture a much larger share of the AI software platform market in the long run. After all, colleagues are like BigBear.ai And C3.ai have failed to gain enough traction in this market, leaving a lot of room for Palantir to become a bigger player in this niche.
Assuming Palantir can increase its share of the AI software platforms to even 50% after five years, its annual revenue could reach nearly $50 billion as the overall market is expected to reach $94 billion in annual revenue by 2030. Such impressive growth should ideally allow Palantir to justify its expensive valuation, helping this AI stock post more gains in the long term as it likely replicates Nvidia’s dominance in AI software.
Consider the following before purchasing shares in Palantir Technologies:
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Nvidia and Palantir Technologies. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.
Is this AI software stock about to have its Nvidia moment? was originally published by The Motley Fool
