Given the stock’s parabolic move higher, some investors are wary of Palantir’s lofty valuation. However, one Wall Street analyst believes this is just the beginning. Let’s take a look at what has fueled Palantir’s epic run and whether there is additional path for growth ahead.
Palantir has been developing cutting-edge artificial intelligence solutions for more than two decades. The company earned its pedigree by designing sophisticated algorithms to serve the U.S. intelligence, military, and law enforcement communities. Its systems developed the astonishing ability to connect seemingly unrelated data to thwart terrorist plots and bring bad actors to justice.
The company has expanded beyond its humble roots and has brought the same data mining expertise to businesses. Palantir’s AI and analytics systems analyze data and provide companies with solutions to real-world problems.
When companies began clamoring for usable AI last year, Palantir rushed to develop its Artificial Intelligence Platform (AIP), a generative AI system that provided data-driven answers. The system leverages company-specific data to develop made-to-order solutions.
One of the main obstacles to adopting AI is that most companies lack the experience necessary to get started. Palantir developed a go-to-market strategy that takes that issue off the table. The company hosted boot camp sessions that pair customer representatives with Palantir engineers to ensure they develop the AI solutions they need. This strategy has proven to be successful beyond the company’s wildest dreams.
Palantir’s quarterly report is packed with customer testimonials detailing their success stories with AIP, and the evidence is clear. In the third quarter, Palantir closed 104 deals worth at least $1 million. Of them, 36 were worth $5 million or more, while 16 were worth at least $10 million. The company said many of these deals were consummated just weeks after the customer attended a boot camp session.
Palantir’s overall results paint a compelling picture. Revenue grew 30% year over year to $726 million, while also increasing 7% quarter over quarter. This also marked the company’s eighth consecutive quarter of profitability, a streak that contributed to its acceptance into the S&P 500.
Perhaps more telling were Palantir’s US business revenues, including AIP, which grew 54% year over year, while its customer numbers grew 77%. This helped the segment’s remaining deal value (RDV) soar 73%. When RDV grows faster than revenue, it provides insight into the company’s future prospects, which are improving rapidly. It also shows that Palantir is quickly overcoming its reliance on government contracts.
While there is no consensus on the total market addressed by generative AI, the magnitude of the estimates may be instructive. At Ark Invest Big ideas 2024Cathie Wood concludes that the AI software market could grow to $13 trillion by 2030. The upside is even more mind-boggling: $37 trillion. Given Palantir’s experience in the field and its success in helping customers implement AI solutions, it’s clear that the company has a long way to go.
There’s no denying Palantir’s lofty valuation, which has divided Wall Street. Of the 19 analysts who covered the stock in October, six rate it as a Buy or Strong Buy, seven rate it as a Hold, and the remaining six rate it as an Underperform or Sell. What is almost universal among bears is concern about their valuation, but appearances can be deceiving.
The stock currently sells for 160 times forward earnings and 40 times next year’s sales. However, its forward price/earnings-growth (PEG) ratio, which takes into account Palantir’s accelerating growth rate, is 0.5, when any number less than 1 is the standard for an undervalued stock.
I’m not the only one who believes the stock can still be bought. Following its admission to the S&P 500, Greentech Research analyst Hilary Kramer opined that Palantir “can easily be” a $100 stock. This represents potential gains for investors of 65% compared to the closing price of the Wednesday.
The analyst cites Palantir’s strong, accelerating revenue and profit growth and growing order book as catalysts for a share revaluation.
For investors still convinced that Palantir is too expensive, dollar-cost averaging provides a mechanism to build a position over time, adding more shares when the multiple is more attractive.
To be clear, Palantir Technologies won’t fit every wallet. However, for those with a suitable investment time horizon (and a cast-iron constitution), Palantir is taking advantage of a huge opportunity within the AI ecosystem, which could be extremely profitable for investors.
Have you ever felt like you missed the boat when buying the hottest stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double bet” actions recommendation for companies that believe they are about to explode. If you’re worried you’ve missed an opportunity to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
-
Amazon: If you invested $1,000 when we doubled down in 2010, you would have $22,819!*
-
Apple: If you invested $1,000 when we doubled down in 2008, you would have $42,611!*
-
netflix: If you invested $1,000 when we doubled down in 2004, you would have $444,355!*
Right now, we are issuing “double bet” alerts for three incredible companies and there may not be another opportunity like this anytime soon.
See 3 “double bet” actions »
*Stock Advisor returns from November 11, 2024
Danny Vena has positions at Palantir Technologies. The Motley Fool has posts and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
Check out the newest addition to the S&P 500. The stock has soared 845% since the beginning of last year and is still a buy right now, according to 1 Wall Street analyst. was originally published by The Motley Fool
