Palantir Makes Its Case Against Frontier AI

In this episode of Motley Fool Hidden Gems Investing, Motley Fool contributors Tyler Crowe, Travis Hoium, and Lou Whiteman discuss:

• Palantir's earnings and guidance.
• The case for model-agnostic AI.
• Caterpillar's incredible quarter.
• Is Spotify a growth stock or a value stock?

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy.

A full transcript is below.

This podcast was recorded on Aug. 4, 2026.

Tyler Crowe: Palantir takes shots at OpenAI and Anthropic today on Motley Fool Hidden Gems Investing. Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe. Today, I'm joined by longtime Fools Lou Whiteman, Travis Hoium, doing a little bit of mixing it up everyone's getting those last-minute summer vacations in before the kids got to go back to school. We'll probably see a lot of host shuffling and guest shuffling over the next couple of weeks.

We are deep in earnings season, and we had three really big earnings reports today, a lot of contrasting things going on in the market. We want to start today with Palantir because, as we're recording, shares are up 26%. The company reported earnings after the close yesterday that beat expectations handily. They increased guidance. Everything looked pretty good. Now, there's been a lot of beat expect earnings so far this season, guys, but I have yet to see one that's really resulted in the market celebrating like we have seen with this one. What exactly was it about Palantir's earnings?

Lou Whiteman: They just blew it out of the park. They just had fantastic results. This is a company with a lot of hubris, and sometimes the hubris is justified. Ninety-three percent year over year, top-line growth. If you want to look trailing 12 months, 79% growth, so this isn't an anomaly, 51% cash flow margins. That's fantastic. The question forever here has been, there's no way you can justify the valuation here if it's a defense contractor. For all our jokes about the Pentagon budget, the Pentagon just doesn't spend money at the rate needed to justify Palantir's valuation. Commercial had been the laggard, but commercial was up 150%. This is exactly what you want.

Travis, I'm curious, what do you think? I can squint and maybe see remaining performance obligations were flat? So maybe that might be a dent, but even then, commercial is different than government, so that could be an adjustment, but I don't know. Tell me what's wrong here? This is just fantastic.

Travis Hoium: It's hard to quibble with any of the numbers. It is always hard for me to wrap my head around a company that's trading for 60 times sales because it's been over 100 times sales in the past year, so that typically does not end well for investors. But if you compound your revenue at 100% year over year for multiple years, it takes that multiple down pretty quickly. That's part of what we're seeing is just they are executing on exactly what the market has been pricing in for quite a while. As the shares have pulled back over the past few months, maybe we are going to see a little bit of a slowdown, and then they went, You know what? No, we're going to accelerate that revenue growth. Hard to quibble with anything.

Lou said the biggest number that jumped out to me: its 150% jump in U.S. commercial revenue. Customers aren't growing that quickly, so that means that the customers they do have are spending more. That's impressive because it shows that they're not just testing it out and going, Nah, we're not seeing any value here. They're actually saying, You know what? We want more from you guys.

Tyler Crowe: I think it's fair to say that CEO Palantir Alex Karp is a bit of an acquired taste for investors. Some people absolutely love him, some people might find him a bit off-putting with bombastic language, sometimes a little bit more aggressive and combative than a lot of other CEOs that you see in the market. You see it in his shareholder letters. You see it on the conference call, and he did use that aggressive language a little bit when talking about the large language model developers like OpenAI and Anthropic.

But I think he did get at a core point that he was talking about, and something that I think companies are really going to be thinking about, and it could really determine a lot of what happens in this AI race lately. It's the building model agnostic AI tools, similar to what Palantir does, versus these models that OpenAI and Anthropic are doing that end up in some sense, building competing tools from their own customers after they've built a lot of their own data.

One of the questions I have is does he have a point, and does that really bode well for the future of Palantir where they can make this argument that says, Hey, do you not want OpenAI and Anthropic taking your data and building your own competitor while you feed them their data? Come to us. Is that a valid sales argument or is that just being defensive?

Travis Hoium: It's all of the above. It's their sales argument. He's talking his book, he's talking their business model, and he's trying to sell to customers and you see similar things from Satya Nadella at Microsoft. But the way that he's talking about this, I just want to quote from the shareholder letter. "The models have grown and thrived by essentially ingesting the entire written work product of our civilization and those models, as well as their creators now have their site set on global industry. We have been the beneficiary of the revolt that is underway against submission of this way of working." That is basically declaring war against Anthropic and OpenAI. That is what Karp is doing here, and it's fascinating to see these business models play out because everybody is trying to win this AI game. That's what we've got to watch. Who is actually going to get the customers, who's going to get the revenue, who's going to generate free cash flow? Palantir is making their case, and they're making a pretty good one.

Lou Whiteman: You can always tell the CEOs who are classics majors, can't you? Stuff like that. Look, one read on this is he's worried that those models can do what Palantir can do, and this is actually a sign of weakness. I don't know if that's the case. I think you can make the case either way that the frontier models strengthen Palantir, or they are a threat. The thing that strikes me, though, is we know Palantir valuation. We know what Anthropic hopes to get and what OpenAI. Can they all exist together? Is there a zero-sum game here or a less-than-whole game? I feel like at some point, something has to flinch, and Palantir does have the advantage, I guess, with their installed base.

Tyler Crowe: And to that point, too, Travis, you were talking Satya Nadella, talking about competing models and a lot of this. One of the things that he had mentioned in previous discussions, conference calls, whatever, is basically custom tailoring the type of model that you need and custom fit to what the actual particular task is. Where we're using these generic, most powerful models in the world that cost a ton of money to, I don't know, organize your calendar, isn't exactly like the best use of resources and stuff like that. It'll be interesting to see the resource allocation, and I think that might be where they all make sense because they can fit a certain resource allocation for a business. Maybe we're less expensive, but we don't take on the biggest tasks sort of thing. That's how this works in a world where everyone works in some way or another versus having only one winner in this open eye race. But speaking about OpenAI, we’re going to talk about one of the pick-and-shovel companies that’s doing spectacularly well. That's Caterpillar, after break.

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Tyler Crowe: Moving on to other companies that are reporting earnings recently and doing incredibly well, it was Caterpillar. Earlier today, Caterpillar posted expectation-smashing results this past quarter, and the stock is up about 5.6 on the news as a result. It was up almost 10% in early morning trading. There was a lot to like here. I was looking through it, earnings across all of its segments were up. It looks like everything's doing incredibly well. Was that all the driving force? What were some of the things I might have missed when I did my first class, guys?

Travis Hoium: I think the big thing here is that when you're spending $1 trillion on building out data centers, there's a lot of demand to go around. I don't know if Caterpillar is the second derivative of the AI trade or the third derivative, but it is definitely downstream of all that spending that's going on because that infrastructure is a lot of physical stuff being built, and that's what Caterpillar does. The big thing that it was construction equipment that was up 35% from a year ago, but power energy and resources also did well. The crazy thing is you can think about this all as one big trait because these are all related things. The fact that energy is doing so well is because AI is doing so well. I don't know what to take from this lob besides the fact that just all this is like a huge rising tide that's lifting all of Caterpillar's boats.

Lou Whiteman: I think that's it, let's talk about why because obviously you don't buy a new dirt mover for each data center. You don't like, for every one of these things, we're going to buy all new equipment. But it's a lot like what John Deere with the farmers. We tend to see spending go up when it's a good year on the farm because the farmers are flush with cash, it's when they can. Similarly, with all of this demand, all these orders, this is causing the customers of Caterpillar to feel confident enough to place orders, to invest in their business. I think that's why you see the strength in construction. It wasn't just in the power systems. It wasn't just one thing. This is just the net impact of all of this cash, all of this investment going into the sector that they serve. showing itself in confidence to order heavy equipment. They boosted their full-year guidance, and they had a record equipment backlog. The backlog is a CAT, always something to watch because, again, you get a lot of orders when things are good, and then you see how long it lasts. But assuming that we don't stop building data centers, this is, again, just filling the industry they serve with cash, and you are going to see companies invest in their businesses when they can.

Tyler Crowe: So something it seems like we're kind of dancing around here, and we all know it is that Caterpillar is a cyclical business. Mining is doing really well. Orders go up. But all the end markets are very cyclical, power, construction, all of these things. My question is, obviously, AI is a big part of that cycle. Also there's some other aspects as well. We were talking before the show the idea of deglobalization and critical mineral mining, where it's being more localized and not dominated on a global scale, where you might see a lot not typically redundant wouldn't normally happen in a globalized world, but you're going to have a little bit more like redundant supply of construction materials because everyone wants to mine their own stuff and stuff like that. I don't know how big that is, but it's certainly something to be playing the part here.

My question is, we know it's cyclical, but could this just be an elongated cycle? Because it seems like normally with Caterpillar, one segment's doing relatively well, where its other end markets are weaker, but right now we're in a point where all three segments are posting great results.

Lou Whiteman: Look, this is why investing is hard. We can see something that looks obvious, but good luck getting the timing right. Should we do a shout-out or maybe someone check in on Michael Burry this morning? Because I agree with everything he's been saying about how it's all overvalued. But two of his biggest shorts were Palantir and Caterpillar. The timing is everything. Caterpillar right now feels like a microcosm for the entire market. It's cyclical. It's up 100% in a year. All of the signs are saying yeah, and it keeps working anyway. It will until it won't, and that's what makes investing hard.

Travis Hoium: The word that comes to mind is super cycle, and this is just part of that super cycle. All of that money that's flowing from those giant Silicon Valley companies is flowing to companies like Caterpillar. The question is, when does it stop? Or when does it even slow down? That's something that I've been thinking a lot about is, as long as capex is growing for these data centers, as long as there's more demand for power, more demand for minerals, all of these things are going to do extremely well. But what happens when growth flatlines or heaven forbid falls? That's when paying 38 times earnings for a company like Caterpillar is going to be really rough for investors. But we're not seeing it yet.

Tyler Crowe: It's not the most recent example, but certainly I think we can all remember, like the 2010, China's economic development growth boom, seven pot eight 9% annually was sending companies, mining companies, Caterpillar, companies like this to soaring heights because of demand was just voracious. But the minute we started to see a slowing Chinese economy and the slowing of the construction cycle, I would assume, like, yeah, 15, 16 years ago was the last, like, real super cycle with a lot of this stuff. It'll be interesting to see if this deglobalization in AI trade becomes the next big supercycle for these particular markets. Coming up after the break, one company that didn't do quite as good on the earnings perspective that's Spotify.

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Tyler Crowe: The three companies that we're talking about here today, Spotify's earnings were definitely one of these things is not like the other results. The company reported earnings after the close yesterday, and as we're right now, shares are relatively flat, but they were down quite a bit in early morning trading. The market seems to be doing it a little bit of a favor here. Now, Spotify hit some significant user milestones, total daily average users and things like that were way up, and margin expansion was exceptionally good, but it did miss expectations for revenue and earnings per share. Travis, I know you followed this company pretty intimately. Was this just some quarterly blip, or is this a trend in decelerating revenue and earnings?

Travis Hoium: This is what happens when a company goes from growth mode to we're now a mature company. The expectations are different, and the question is going to be, what do investors expect from the company? And then what are the investors that are going to be excited about that? Spotify grew their total monthly users by 12% year over year. This is a company that has 777 million monthly active users. That is a massive number. They're also continue to grow their premium revenue, 15%, but this is not going to be a company that's going to grow 20-plus percent year over year, like it maybe was a handful of years ago. You're going to be more focused on things like margins and free cash flow. That's not necessarily as exciting.

That said, management thinks that they can continue to grow their compound annual growth rate in that mid-teens range and get to a 20% operating margin. That's a pretty darn good business, the question is, what are you going to pay for it, and that seems to be the battle for investors today is a little bit like Caterpillar. If this is going to be just a mature cash-generating business, what do you pay for it? Is 31 times earnings the right number? Maybe it is, but you're going to have to decide what do you expect as an investor? Are you growth investor or a value investor?

Lou Whiteman: I'm always amazed when they find more people that don't have the service that they can add that way. Good on them for that. But Travis, I think you have it exactly right, is that sometimes with stocks, the stock isn't the problem. The investor base is that this is a fine company, but it is more mature than it used to. It's unlikely to be the growth story it was. It may take time for the investor base to just switch out, and that's going to cause volatility. I think it is a free cash flow store, and I think it has a great story to tell. I think it's a really attractive income/growth hybrid investment from here, but it is going to be a different story than it was. I don't think you're going to see the growth-focused crowd saying “Wow” to these results. That doesn't mean it was a bad quarter, though.

Tyler Crowe: This sounds similar to the conversation we've been having here on some Motley Fool Live events around, like Netflix, as well as, who is the investor anymore? Because these growth stories that all of a sudden are transitioning to, we're still growing just not at these nosebleed level growth that we had been putting we're now profitable. We're throwing off quite a bit of cash, it changes the type of investor that gets involved in these sort of companies. I don't want to prefaces of saying like, Spotify is a bad company now, it's just a different company into a different phase of its life. When I look at it, it's a solid company. It's generating a lot of free cash flow. Revenue right now high single digits. Maybe you're going to get low double digits on a growth surge, maybe a pricing increase. It's still a very quality business. But is that a company that merits 32 times, 33 times earnings? That's the question here. On that daily user growth, part of me almost says, "Is there no more worlds left to conquer?" Yes, it's growing, but it's become the dominant market share. As to lose point, like, who isn't using this service at this point?

Lou Whiteman: Funny, I'm not, so Spotify, call me. But I get it thrown in with my phone service. I guess there are at least one more world to cover. But Tyler, I think you're exactly right. I will say, shout-out to Spotify, because I think there's a better case here than there is for some. I'm going to get nasty letters, but Starbucks and some of these companies. I just think good company, bad stock. I think this is still a stock that works because I think it is a hybrid growth. I think they do have some levers to pull, but, yeah, I think that's it. That probably two things can be true here. It's still a good investable stock, but the valuation might need adjustment from here.

Travis Hoium: Yeah, 30 times earnings isn't crazy for a company that can continue to grow in the mid-teens. But I think you're right. How do you grow the business from here, and it's going to be a balance of how do you price a product where you have basically saturated the market? You're playing this game of do we want more monthly active users, or do we want a higher price per user? Because there is some elasticity in that market. You have competition from products like YouTube.

I think what we've learned with Spotify over the last few years is they're not going to be the next Google, for example, we're just going to keep tacking on new product after new product, add YouTube, add Waymo. Their ad product stinks that basically didn't grow year over year. That’s not a huge driver of their growth. Their video, I don't think is what they thought it maybe could be. It's just a solid business. It's just the kind of service that I'm going to sign up for and pay for for the next decade. As my kids get older, they'll eventually graduate into buying their own accounts. That's a good business. It can be fine for investors at 30 times earnings. I don't think it's a steal. If they ever get to the point where it's so cheap that they decide that they're going to buy back a whole bunch of stock, it could be really interesting, but this is going to be a little bit more ho-hum for investors, and a lot of times, that's not going to get a lot of headlines for you.

Tyler Crowe: It'll be interesting to see how you're saying that mid-teens growth, it's definitely worth playing. But as we were saying, not quite there yet, but there are some levers to pull, maybe fixing around the margins, ads, maybe figure out video. These are new initiatives, and some things aren't always perfect execution all the time. There is a path there, but not quite in the cards yet. A last question before we get out of here, guys, of the three companies we talked about today, Palantir, Caterpillar, Spotify, I think, based on what I've heard, I've gotten a good idea, which of these three companies is most attractive to you right now?

Lou Whiteman: If I was to buy one today, it would probably be Spotify, but I don't know if I really want to jump into any of these three.

Travis Hoium: I agree. It's the one that I own. It's the one where I can actually wrap my head around the valuation, and it's not as cyclical. It's more that I am not really interested in buying Palantir or Caterpillar today.

Lou Whiteman: Just so we're not boring, if it's a long enough time horizon, I'll take CAT.

Tyler Crowe: We've got them on record, everyone, so you can lambast them in emails and comments later, and we'll figure that out from there.

As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards, and it's not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. Thanks for producer Dan Boyd and the rest of The Motley Fool team for Lou, Travis, and myself, thanks for listening, and we'll chat again soon.

Lou Whiteman has no position in any of the stocks mentioned. Travis Hoium has positions in Alphabet and Spotify Technology and has the following options: long December 2027 $50 puts on Palantir Technologies. Tyler Crowe has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Caterpillar, Deere & Company , Microsoft, Netflix, Palantir Technologies, Spotify Technology, and Starbucks. The Motley Fool has a disclosure policy.