With shares up 58% over the last 12 months, Palantir Technologies (NYSE: PLTR) has been a solid performer in the competitive artificial intelligence (AI) landscape. While the company isn't involved in the highly lucrative hardware side of the opportunity, its software focus could help transform military contracting and law enforcement. Let's explore how the company's near-term decisions could impact its long-term potential.

According to Bloomberg Intelligence, the generative AI industry could grow at a compound annual growth rate (CAGR) of 42% to $1.3 trillion by 2032. Initially, most of this expansion will benefit hardware companies like Nvidia and Advanced Micro Devices (AMD), which make the computer chips needed to run and train these advanced algorithms.

However, over time, the market is expected to shift toward software companies like Palantir that use AI to solve real-world problems. Law enforcement and the defense industry might be willing to pay big bucks for solutions that keep them one step ahead of their adversaries.

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Source Fool.com