The Concentration of Alpha in the October 2025 Market
The equity markets on October 30, 2025, show a brutal divergence between companies that sell AI promises and those that extract AI cash. As of yesterday’s close, Nvidia ($NVDA) and Palantir ($PLTR) represent a combined 14 percent of the total year to date returns for the S&P 500. This is not a broad-based rally. It is a concentrated extraction of value by firms that control the physical and logical layers of the stack. While the broader market grapples with a sticky 3.1 percent inflation rate as reported in the latest Reuters economic brief, these two entities are operating in a deflationary environment for their own production costs while maintaining massive pricing power.
Nvidia Dominates the Compute Tax
Nvidia remains the primary tax collector for the generative era. The October 2025 rollout of the Blackwell Ultra architecture has silenced critics who predicted a 2024 peak in capital expenditures. According to Bloomberg data, hyperscalers including Microsoft and Amazon have increased their 2025 hardware budgets by a staggering 22 percent compared to the previous year. Nvidia’s gross margins have stabilized at 76.4 percent, a figure that defies traditional hardware cycles. The technical reason for this persistence is the transition from ‘training’ to ‘inference’ at scale. In late 2025, inference now accounts for 45 percent of Nvidia’s data center revenue, up from 30 percent in late 2024. This shift means that even if new model training slows, the execution of those models requires a permanent, growing floor of compute capacity.
Palantir and the Logic Layer Monopoly
Palantir has successfully transitioned from a niche defense contractor to the primary operating system for enterprise AI. The company’s Q3 2025 earnings preview suggests a 42 percent year over year growth in US commercial revenue. This growth is driven by the ‘Bootcamp’ model, which Palantir reports has a conversion rate of 68 percent from trial to multi year contract within 90 days. Unlike generic large language model providers, Palantir’s Artificial Intelligence Platform (AIP) provides the ‘Ontology’ layer that translates raw data into actionable logic. Per recent SEC filings, Palantir’s remaining performance obligations (RPO) have ballooned to 1.8 billion dollars, indicating a massive backlog of locked-in enterprise spend that is immune to short term macroeconomic fluctuations.
Deconstructing the Technical Moat
The market is currently valuing these firms based on their ability to solve the ‘Hallucination Problem’ in industrial settings. Nvidia solved this through hardware-level precision in FP8 and FP4 data formats, which allow for faster processing without a loss in accuracy. Palantir solved it through its proprietary ‘Truth Engine,’ which forces AI models to check their logic against the organization’s existing rules of engagement. This is the ‘Why’ behind their dominance. While other AI firms are burning cash to acquire users, Palantir and Nvidia are charging a premium to solve the most expensive problem in modern business: turning unstructured data into reliable profit. The 10-year Treasury yield, currently sitting at 4.2 percent, has failed to depress these valuations because their growth rates are effectively three times the cost of capital.
The Next Threshold for 2026
The immediate milestone to monitor is the January 2026 release of the Nvidia ‘Rubin’ architecture roadmap, which is rumored to integrate high-bandwidth memory (HBM4) natively into the processor die. For Palantir, the critical data point is the renewal rate of the initial 2023 AIP bootcamp cohort, which will hit their three year contract triggers in the first quarter of 2026. If Palantir maintains a net dollar retention rate above 125 percent through this cycle, the stock will likely decouple from the software sector entirely.
