Should Users Still Invest in Palantir's Shares? Wall Street Provides a Clarity-filled Response.
The advancement of synthetic intelligence (SI) is forecasted to bring about significant alterations in our lives. Though the technology is still in its fledgling stages, innovations in generative SI are witnessing rapid advancements, resulting in an abundance of potential use cases.
One of the key beneficiaries in 2024 is Palantir Technologies (PLTR, -3.05%). The stock has surged more than 240% so far this year and 820% since SI gained momentum in early 2023. The substantial gains have also elevated the stock's valuation, causing unease among some investors.
Let's examine the primary factors driving Palantir's growth, Wall Street's assessment, and whether or not the stock is a worthwhile investment at the moment.
Leveraging the power of SI
Palantir arose from the ashes of the 9/11 terrorist attack, driven by the belief that compartmentalized intelligence data held key insights that could have prevented the tragedy. Founder Peter Thiel envisioned a system capable of drawing data from various sources and utilizing advanced algorithms to connect seemingly disparate details to identify potential threats before they escalate. The result was Palantir, which quickly became the primary provider for U.S. intelligence agencies and their allies.
Since then, Palantir has expanded outside its initial defense offerings, employing the SI knowledge it developed to serve enterprise businesses. The company's data mining and business analytics expertise allow it to offer customers valuable insights.
The turning point occurred early last year with the introduction of its Artificial Intelligence Platform (AIP), which leverages generative SI to fortify its systems and better serve enterprise clients. By tapping into existing data, AIP can tackle company-specific issues, presenting solutions that may have otherwise gone unnoticed.
Consider, for instance, a demo video showcasing how AIP can leverage a company's data to minimize production disruptions during an oncoming hurricane. The system evaluates remaining orders, suggesting which ones to expedite, postpone, or cancel. It also recommends which orders should be transferred to other fulfillment centers and how pursuing alternate delivery methods will impact backlogs and profits.
Several months ago, Palantir removed the uncertainty surrounding the implementation of SI solutions by hosting immersive boot camp sessions. "These hands-on workshops enable new and existing customers to work in tandem with Palantir engineers, all with the common goal of deploying AI in operations," Palantir stated. The ability to address real-world business challenges sparked a surge in demand for these boot camps, boosting the conversion rate of AIP deals.
The exceptional success of AIP has had a telltale impact on Palantir's financial results. In the third quarter, revenue grew by 30%, while adjusted earnings per share (EPS) rose by 43%. However, these numbers only tell part of the story. Palantir's U.S. commercial revenue, which includes AIP, surged 54%, and the segment's customer count grew 77%. Moreover, the segment's remaining deal value – providing insight into future performance – increased by 73%. The future looks promising.
What does Wall Street think?
The recent surge in Palantir's stock price has naturally caused caution among some investors, as it has accompanied a proportional increase in the stock's already high valuation. The stock currently trades at 157 times forward earnings and 39 times forward sales, which is stunning regardless of how you quantify it.
As a result, many on Wall Street have retreated to the sidelines. Of the 20 analysts tracking Palantir, only four recommend buying or strongly buying the stock, while ten advise holding, and seven advise selling.
The most recent bearish perspective originates from Jefferies analyst Brent Thill, who raises concern over Palantir's inflated valuation. He acknowledges the accelerating sales and profit growth, stating, "the fundamentals are alive," but calculates that Palantir would need to generate 40% year-over-year revenue growth in each of the subsequent four years to justify the current valuation. They concur, suggesting that if Palantir's growth trajectory were to falter, "the market tends to penalize highly valued tech stocks."
On the contrary, Greentech Research analyst Hilary Kramer posits that Palantir "easily could be" a $100 stock, urging Wall Street to embrace the company's accelerating growth, which she believes has only just begun.
In essence, Wall Street maintains a consensus rating of hold, suggesting investors should tread cautiously when considering purchasing the stock or merely avoid it for now. These analysts have a valid point: Any shortcoming from Palantir – actual or perceived – could easily trigger a decline in the high-priced stock and result in double-digit share price losses.
In conclusion, I believe Palantir stock still represents a buying opportunity, but...
So what does this signify for investors concerned about missing out on the year's most promising growth story? I personally believe Palantir has a promising future, but I'm likewise aware of the potential for substantial volatility – especially following the stock's 800% price increase since January 2023.
In such situations, I typically opt to buy a modest stake in the company, which obliges me to monitor its performance closely. This also offers the flexibility to expand upon my position based on future valuations (or not) depending on how events unfold. Dollar-cost averaging is also an essential strategy, enabling investors to establish a position by acquiring more shares when the price is low and fewer when the price is high.
If Palantir's expansion pace remains swift – and I'm convinced it will – investors will likely crave to get a slice of this captivating growth saga. However, they don't need to risk their entire fortune to secure a share.
In the realm of investing, Palantir Technologies' growth can be attributed to its emphasis on leveraging synthetic intelligence, particularly generative SI, in its Artificial Intelligence Platform (AIP). This innovation allows the company to provide valuable insights and solutions for enterprise clients, minimizing production disruptions and optimizing operations.
In the finance sector, the high valuation of Palantir shares has led to mixed opinions among analysts. While some see the current valuation as unsustainable, others believe in the company's potential for further growth, with one analyst even suggesting that Palantir could potentially be a $100 stock. This division within the finance community highlights the importance of careful consideration and strategic investment when it comes to purchasing Palantir stocks.
