Both Palantir and Innodata stand to gain from the surge in generative AI.
The artificial intelligence (AI) sector has seen significant growth over the last ten years. A lot of this recent expansion can be attributed to AI models like OpenAI’s ChatGPT and Google’s Gemini, which pull from extensive language databases to produce new content and engaging, human-like dialogue.
Investors in AI are often drawn to chipmakers, with stocks like Nvidia and Broadcom seen as the go-to options for this AI gold rush. However, it’s important not to overlook the software companies that are also capitalizing on this trend. Among the rising stars in this field are Palantir and Innodata, which have gained attention for their rapid growth. Let’s explore how both of these firms could potentially triple their revenue in the next five years, and which might be the wiser investment choice right now.
What are Palantir and Innodata doing?
Palantir has developed two major platforms: Gotham, aimed at government entities, and Foundry, tailored for commercial clients. These platforms gather and analyze data from a variety of sources, enabling clients to discern patterns and make informed decisions. They have found a place in most U.S. government agencies and large companies, including Amazon.
Innodata, initially a slow-growing data analytics firm, shifted gears in 2018 by launching a range of microservices designed for data annotation and preparation for AI applications. In many cases, when tech companies embark on new AI initiatives, a whopping 80% of their time goes into preparing the data, leaving just 20% for training algorithms. To tackle this issue, several of the leading tech companies have started utilizing Innodata’s microservices to streamline their data preparation processes for AI.
How fast are Palantir and Innodata growing?
From 2020 to 2024, Palantir’s revenue is set to soar from $1.1 billion to $2.9 billion, demonstrating a compound annual growth rate (CAGR) of 27%. By 2023, the firm turned a profit according to GAAP and more than doubled its net income in 2024. These profit spikes have led to Palantir being listed in major indexes like the S&P 500 and the Nasdaq 100.
Palantir did experience slower growth in 2022 and 2023, grappling with unpredictable government contract timelines and significant economic challenges affecting its commercial sector. However, as geopolitical situations evolved, new contracts emerged alongside increased enterprise spending, reigniting growth for the company.
In contrast, Innodata has been on a quick upward trajectory, with its revenue increasing from $58 million to $170 million between 2020 and 2024, reflecting a CAGR of 31%. The company is projected to reach profitability under GAAP criteria in 2024.
This growth surge for Innodata is largely fueled by the burgeoning generative AI market, prompting major tech firms to develop new language models, AI chatbots, and other AI-driven tools. The firm is also investing in its new Innodata Labs division to enhance scalable AI data preparation services.
Why were Palantir and Innodata able to triple their revenue in five years?
Forecasts suggest Palantir’s revenue could grow at a stunning CAGR of 44%, reaching $8.5 billion from 2024 to 2027, almost tripling its 2024 figures. If the company continues on this path, its revenue might climb to approximately $14.7 billion by 2030. That said, Palantir already commands a lofty market capitalization of $407 billion, which is about 93 times the sales expected for this year. Such high valuation could limit immediate growth potential.
For Innodata, projections indicate revenue growth from $170 million to $313 million with a CAGR of 36% between 2024 and 2026. If it maintains a 20% growth rate over the next four years, sales might hit $649 million by 2030. Considering its $1.9 billion market cap, it remains more reasonably priced at about 8 times this year’s expected sales.
Which stocks should I buy now?
Palantir has shown explosive growth, yet it seems like a lot of optimism is already factored into its soaring stock price. On the other hand, Innodata, which is still relatively undiscovered, offers considerable upside with a more balanced valuation. While both companies have the potential to significantly ramp up their revenue within five years, Innodata appears to be the more promising investment currently.
