I'm joined by Palantir CEO Alex Karp. Alex, thank you for your time. Great to be here at your DC office.
Happy to be here. Happy to have you.
One month ago, you launched a viral debate around the open source versus closed source AI model. What's best for a company?
By the way, that's not the revolution that we launched. That is a part of the revolution. The revolution we launched was sovereign AI and the open weight is a component of that. But the sovereign AI revolution really is about: you create value, you keep the value, and we don't care what tools you use. So of course we are a large supporter, one of the early supporters of this letter that was organized by our partner Jensen Huang. And that's a very, very important part of this so that enterprises can control the weights of their model. But at the end of the day what we care about is from beginning to end our partners get to control the value, their alpha, meaning what they create stays with them, what has made their business, their expertise of their business. So you could think of this as pure intelligence and expertise. Expertise meaning this is how you create value in enterprise that has to stay with the enterprise whether it's on the battlefield or commercially. And that revolution, which I think really was launched together, has changed how American enterprise views the landscape. And again, every enterprise we interact with, and that includes some of the biggest and most important government enterprises in the world, is saying: why would we pay people for something that's not useful and then not control the means that allow us to advance our business while keeping the value of the business inside? And you see the results. Partly because we were the first business to actually capture value at scale for ourselves and then transfer to our partners. We grew our business 93%. 93.
Better than what analysts were expecting.
Okay, that's not... no, okay, great. Forget consensus. No business, to my knowledge, no businesses at our scale even grown half this much. We grew 85% last quarter, like that was crazy. 93% is like a revolution. So, by the way, and then you would say, is the revolution growing in a way that's profitable? Our adjusted free cash flow margins are at 63%. Our rule of 40 is 155. The US business, the business that really counts, we are at massive scale, we grew 115%. 115%. The first thing that any normal person does is spit out their dentures. And after they spit out their dentures, they turn the numbers to see if these numbers are even possible. And then the question is, can this business grow at this rate? Can the business grow at greater than 100% for the next 18 months? And what you see in both the sovereign demand for our product, the product offering, our alliances all the way down compute up, including helping to open up the world to being receptive to open weight models and they're beginning to fine-tune these models. So the models work at Frontier is a business unlike any other business that is poised to grow with these margins and with this revenue growth for another 18 months.
So the response has been very positive since four weeks ago when you talked about the AI and sovereignty debate. Customers have been responding positively.
No. Okay. You're using a frame of analysts are happy. Customers... this is a revolution. This is not... happy is when you come home and have a nice conversation with your partner. This is much more like you come home and your house is a castle and you're flying through the air in your car. Like this is a revolution. This is not moderate improvement, moderate happiness. Analysts are pleasantly surprised. Eyebrows get raised. This is a completely different world. And by the way, again, I don't want to over-glorify this because like in a weird way, it's not just the numbers, but the importance of the numbers. It's not just 93. It's not just 115. We grew US commercial at almost 150%. 150%. But what's important about those numbers is you can see in the numbers because of the charisma and truth of the sovereign AI riff and its importance that we helped launch together that these things are going to go on for a long time. And why is this important? We have people trying to drug addict us to a future they believe they control. Now I've spent a lot of time with Dario and the EA crew. They want to tell you we have to march into a future where we own nothing, where our businesses aren't profitable, where none of us have jobs, and where our adversaries win. And Palantir and our allies are guiding into a future where you have growth and jobs. The margins are a metaphor for everyone earns.
You've blamed the frontier labs of overcharging customers, right? OpenAI has responded. They brought down their token pricing. By the way, why are you deepening your threat against the big tech companies... In this investor letter you say we have always declined and will continue to decline entering into a parasitic relationship with our partners.
Okay. But you're taking two things. Charging for a price, which I'm... Palantir, we get paid a lot of money. Why do we get paid a lot of money? Because we create value for the customer first and value that they keep. So my central... obvious, it's not even an attack. All I did is put out facts. There's been no response to these facts. And primarily I was talking about a philosophy that is downstream from the belief that because they will own the future, they can take your alpha and transfer it to them in the present. I actually truly believe if a lab or Palantir or an open weight model or people deploying open models create a billion dollars in value, they should make $300 million. That's a fair thing. It's not about what you charge, it's what you charge for. If you're charging for something that creates very little value, and simultaneously, if I charged you a million dollars for something and you're like, 'Okay, what value am I getting?' What if I charged you a million dollars and you found out I migrated your whole bank account into my bank account at the same time?
And CEOs understand that. They acknowledge those comments you made four weeks ago when you came on CNBC. But what do you say to the small business that says, 'We don't have the budget to be able to have an open weight plus a closed source model. We got to just go with the frontier labs.'
Well, I think actually what's going to happen, more... I think actually that's the inverse. I think the smaller businesses are going to move to open weight models because they can't afford it and also they are very worried about their IP. I think the reality of what's going to happen with our business partners, which are medium to large businesses, whose fate most jobs in America rest upon. Your economic future and our ability to defend ourselves rests on the back of our partners. And our partners are going to move to an application layer because open weight or closed weight, they're not putting those models on top of their enterprise. First of all, they don't create a lot of value. Second of all, the value they create gets migrated to someone else. And they're all running around saying 'no ontology, no love,' which is like a saying from the 70s I had to look up. But that's what they're saying. And they're going around saying, 'And by the way, we're not even... we're educating people that aren't even our partners.' Like, 'Not everybody we educate is going to become our partner, but I'll tell you what, they're not going to fall for this trick if I give away the means of my production and pay for it. At least they should pay you.' It'd be a very different thing if they're like, 'Hey, look, we'll pay...' If I came to them like, 'Look, I'll pay you a million dollars. Yeah, your business is going to be worthless after I'm done, but at least I gave you some money.' What if you equity or something?
Or something, you know? So, any case... But by the way, I've spent a lot of time with you. Look, I've spent a lot of time with Dario. He's not the caricature people think. They have a philosophy. That philosophy is a very important philosophy, the determinative philosophy in the tech scene of the last couple years. And that philosophy in its business practice basically says in simple terms: I own the future. Therefore, you should migrate the value of your business to me and be happy with the derivative of that that you sometimes get after a wealth tax. And most Americans are saying, 'I already have a religion and I'd rather stick with my religion than embrace yours because my religion makes me better, wealthier, more spiritual, and many other things.' This other religion actually is a way of explaining to themselves... like you have to remember you're sitting at a large model company and you're a highly ethical person. How do you explain to yourself why it's your right to migrate the value of your business to their business and therefore take the jobs and prosperity of those people away from them? You do it because you believe you're creating a better tomorrow. Just unfortunately that tomorrow is not going to be as good for the people that you are partnering with and that are paying you.
So then if we see the industry move towards open weight models, the frontier labs commoditized, what happens to their valuation? Do they get cut in the necessary valuation?
That topic is irrelevant to me. Sorry, sorry. You know, I talked to Sorkin about this and I'm just going to say the same thing. You guys are very worried about what happens to their valuation. I'm worried about what happens to American enterprises that power most of the economy, most of the jobs, what happens to the Department of War and the safety and veracity of our physical and economic life. Every company in America should be downstream of that. I have no professional interest in discussing what... By the way, and also I would say in a slightly more ascerbic way: why are we so focused on how well a small group of people do in America? Why don't we focus on how Americans are doing? And I'll tell you what's good for Americans: they get to control the value of the enterprise. By the way, it's also very good for Palantir. Witness 93% growth, 115% growth in America, rule of 40 at 155, and an ascendance that looks like this is going to go on for at least another 18 months.
Speaking of Americans, both OpenAI and Anthropic have disclosed over the last two weeks hacking incidents. Should Americans be worried about how safe their data is?
