Palantir and Innodata are both poised to reap significant benefits from the explosive growth of the generative AI sector.
The artificial intelligence (AI) market has experienced remarkable growth over the last decade. This surge can largely be attributed to the emergence of innovative generative AI platforms, including OpenAI’s ChatGPT and Alphabet’s Google Gemini. These platforms utilize advanced large language models (LLMs) to generate new content and deliver human-like responses in natural conversations, enhancing user engagement and interaction.
While many investors are drawn to chip manufacturers like Nvidia and Broadcom, which are essential players in this AI gold rush, it is equally important to consider the AI software companies that are also benefiting from this megatrend. Among the fastest-growing software companies in this arena are Palantir (PLTR +2.16%) and Innodata (INOD 0.98%). Let us explore how both companies have the potential to triple their revenues over the next five years and determine which stock presents a more attractive investment opportunity at this time.
Image source: Getty Images.
Understanding the Core Functions of Palantir and Innodata
Palantir operates two primary platforms: Gotham for government clients and Foundry for commercial users. Both platforms excel at aggregating data from various sources, enabling clients to identify trends and make informed, data-driven decisions. This technology is already widely adopted by many U.S. government agencies as well as large enterprises like Amazon, showcasing its effectiveness and reliability.
Innodata, initially perceived as a slow-growth data analytics firm, transformed its business model in 2018 by introducing a suite of specialized microservices designed for annotating and preparing copious amounts of data for AI applications. In fact, when major tech companies initiate new AI projects, they typically allocate a staggering 80% of their time to data preparation and only 20% to training the AI algorithms. To mitigate these inefficiencies, several of the leading companies, referred to as the “Magnificent Seven,” have begun utilizing Innodata’s microservices to efficiently clean and prepare their AI-focused data.
Assessing the Growth Trajectory of Palantir and Innodata
Between 2020 and 2024, Palantir’s revenue exhibited a robust compound annual growth rate (CAGR) of 27%, increasing from $1.1 billion to a projected $2.9 billion. Furthermore, the company achieved profitability according to generally accepted accounting principles (GAAP) in 2023, with its GAAP net income more than doubling in 2024. These impressive earnings have resulted in Palantir’s inclusion in both the S&P 500 and Nasdaq-100 indexes last year, underscoring its growing prominence in the market.
Despite a slowdown in growth during 2022 and 2023 due to the timing of government contracts and challenging macroeconomic conditions affecting its commercial sector, Palantir is witnessing a resurgence in growth. This renewed momentum is fueled by escalating geopolitical conflicts, which have led to new government contracts, alongside increased spending from commercial clients in a more favorable macro environment. Additionally, the rollout of new tools aimed at creating custom generative AI applications has further bolstered its growth prospects.
Today’s Change
(2.16%) $3.84
Current Price
$181.76
Essential Data Points
Market Cap
$433B
Day’s Range
$177.16 – $182.15
52wk Range
$63.40 – $207.52
Volume
32M
Avg Vol
53M
Gross Margin
80.81%
Dividend Yield
N/A
Similarly, from 2020 to 2024, Innodata’s revenue surged with a CAGR of 31%, rising from $58 million to an impressive $170 million. Notably, it also achieved profitability on a GAAP basis in 2024.
The significant growth for Innodata was primarily driven by the rapid expansion of the generative AI market, prompting top technology firms to develop new large language models (LLMs), AI chatbots, and various AI-driven tools. To sustain this growth, Innodata has increased its investments in research and development through its Innodata Labs unit, which focuses on supporting scalable AI-data-preparation services.
Today’s Change
(-0.98%) $-0.57
Current Price
$57.78
Essential Data Points
Market Cap
$2B
Day’s Range
$56.60 – $58.95
52wk Range
$26.41 – $93.85
Volume
707K
Avg Vol
1.9M
Gross Margin
41.08%
Dividend Yield
N/A
What Factors May Lead Palantir and Innodata to Triple Their Revenues by 2027?
Looking at the future, analysts project that from 2024 to 2027, Palantir’s revenue may grow at an astonishing CAGR of 44%, reaching a target of $8.5 billion. This figure represents nearly three times the $2.9 billion generated in 2024. If Palantir manages to meet this projection and continues to grow at a CAGR of 20% over the next three years, its revenue could potentially soar to $14.7 billion by 2030. However, this optimistic forecast comes with caution, as Palantir currently holds a market cap of $407 billion, translating to 93 times this year’s projected sales. Such a lofty valuation may pose limitations on its short-term growth potential.
In contrast, analysts anticipate that Innodata’s revenue will rise at a CAGR of 36% from 2024 to 2026, escalating from $170 million to $313 million. If it successfully achieves these targets and maintains a CAGR of 20% over the subsequent four years, its revenue could reach a remarkable $649 million by 2030. With a market cap of $1.9 billion, Innodata appears to be reasonably valued at eight times this year’s projected sales, making it an appealing prospect for investors.
Which Stock Presents a More Attractive Investment Opportunity Today?
While Palantir is experiencing rapid growth, there is a sense that too much optimism has already been reflected in its soaring share prices. On the other hand, Innodata still possesses substantial upside potential, yet it remains relatively lesser-known and trades at more attractive valuations. Consequently, although both of these companies are likely to triple their revenues over the next five years, Innodata appears to be the more prudent investment choice compared to Palantir at this moment.
