He S&P 500 It is considered the best overall benchmark of the US stock market and is made up of the 500 largest publicly traded companies in the country. Given the variety of companies that comprise it, it is considered the most reliable indicator of the general performance of the stock market. To be part of the S&P 500, a company must meet the following prerequisites:
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Be a company based in the United States.
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Have a market capitalization of at least $8.2 billion.
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Be very liquid.
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Have a minimum of 50% of its outstanding shares available for trading.
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Be profitable according to GAAP in the most recent quarter.
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Be profitable in the previous four quarters as a whole.
Palantir Technologies (NYSE: PLTR) is one of the most recent additions to the S&P 500, joining on September 23rd. It is also one of 11 companies that have achieved the qualification so far this year. Since the arrival of generative AI in early 2023, Palantir shares have risen 575%, boosted by strong sales and profit growth.
Even after gains of that magnitude, some on Wall Street believe there is more to come. Let’s review what has driven the stock higher and whether its high price has simply made it too risky.
AI solutions for the masses
Palantir made a name for itself serving the United States intelligence and law enforcement communities. The company’s first-of-its-kind algorithms could sift through mountains of data and connect seemingly disparate pieces of information to track potential terrorists.
In more recent years, Palantir has applied its sophisticated algorithms to give companies a competitive advantage by providing actionable business intelligence. Thanks in part to its decades of experience, the company quickly recognized the opportunity generative AI represented and developed timely solutions to meet the need. Palantir’s Artificial Intelligence Platform (AIP) was born from those efforts. By leveraging existing business data, AIP can provide companies with solutions tailored to specific needs.
The proof is in the pudding.
Palantir’s go-to-market strategy for AIP is what helped differentiate the company. The company offers boot camps that pair customers with Palantir engineers to help them design solutions to their unique challenges. This strategy has proven to be tremendously successful.
Last month, Palantir announced a new multi-year, multi-million dollar contract with Nebraska Medicine, which used AIP to improve healthcare by leveraging technology. After what it describes as “a series of targeted boot camps,” the health system was able to implement a new workflow that resulted in a more than 2,000% increase in its discharge room utilization, freeing up beds earlier and reduced the time needed for discharge. one patient in one hour (on average).
This is just one example of dozens of customer testimonials that show AIP is saving them time and money, which in turn improves Palantir’s bottom line. In the second quarter, it closed 96 deals worth at least $1 million. Of them, 33 were worth $5 million or more, while 27 were worth at least $10 million. Additionally, many of these deals were signed just weeks after a successful training camp session.
Taking a step back helps illustrate the impact on the company’s overall results. In the second quarter, Palantir’s revenue grew 27% year over year to $678 million and also increased 7% quarter over quarter. This also marked the company’s seventh consecutive quarter of profit generation. Consistent profitability was the final hurdle needed to secure admission to the S&P 500. Additionally, Palantir’s U.S. commercial revenue, fueled by AIP’s success, grew 55% year over year, while The number of clients in the segment grew by 83%. Even more impressive was the segment’s remaining deal revenue (RDV), which soared 103%. When RDV grows faster than revenue, it shows that future revenue growth is accelerating.
Most experts suggest that these are still the first steps in adopting artificial intelligence software. At Ark Invest Big ideas 2024Cathie Wood estimates that the opportunity for generative AI software could skyrocket to $13 trillion by 2030. The upside is even more striking, at $37 trillion.
Given Palantir’s unique vision for AI deployment and the magnitude of the opportunity, it’s clear the company can continue to thrive in an increasingly AI-centric world.
Wall Street’s biggest bull Palantir
I’m not the only one who thinks that. Immediately following its admission to the S&P 500, Greentech Research analyst Hilary Kramer posited that Palantir “can easily be” a $100 stock. This represents a 130% upside potential compared to Monday’s closing price.
Kramer believes that given the company’s strong revenue and profit growth and rising backlog, investment banks will eventually have to jump in and raise their estimates, causing others to look at the stock, fueling a virtuous cycle. .
Despite the huge opportunity and stellar execution, some investors will be put off by Palantir’s frothy valuation. The stock currently sells for 122 times forward earnings and 29 times forward sales. However, using the Forward Price/Earnings-Growth (PEG) ratio, which takes into account the company’s impressive growth rate, comes in at 0.4, when any number less than 1 indicates an undervalued stock.
In a case like this, when valuation is an obstacle, dollar-cost averaging allows investors to gradually enter the stock over time, acquiring more shares when the price is more reasonable.
Make no mistake: Palantir is positioned to benefit from the AI revolution. Investors with the stomach for some volatility and a bit more risk should consider a position in this cutting-edge AI stock.
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*Stock Advisor returns from October 14, 2024
Danny Vena has positions at Palantir Technologies. The Motley Fool has posts and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
Meet the newest addition to the S&P 500. The stock has soared 575% since the beginning of last year and is still a buy right now, according to 1 Wall Street Analyst originally published by The Motley Fool