The index introduced its annual rebalancing on Dec. 13 after the market shut. Palantir Technologies (NASDAQ: PLTR) was chosen to affix the Nasdaq-100, “which might be efficient previous to the market open on Monday, Dec. 23.” Since generative synthetic intelligence (AI) went viral early final yr, Palantir inventory has surged 1,090%. Its many years of expertise with AI made it the go-to for AI options, doubtless easing its admission to the index.
After its current surge, some buyers are reluctant to purchase the inventory, significantly given its frothy valuation. One Wall Street analyst believes that view is myopic. Let’s evaluate the circumstances behind Palantir’s current parabolic transfer larger and see whether or not there’s extra upside forward.
Palantir was born from the rubble of 9/11, with the concept that the precise AI algorithms may piece collectively seemingly unconnected bits of knowledge that will uncover a terrorist plot earlier than it may come to fruition. The firm quickly gained a following among the many U.S. intelligence neighborhood and our allies, and navy and legislation enforcement businesses shortly adopted its options.
Over time, the corporate expanded its choices to deliver its knowledge mining, analytics, and AI know-how to enterprise clients, offering data-driven options. The introduction of AI early final yr introduced clients in droves searching for options. Palantir swiftly developed a multipurpose instrument to reply the decision. The Artificial Intelligence Platform (AIP) was the fruit of its labor. By connecting AI to an organization’s operational knowledge, AIP can present real-time, company-specific options to real-world issues.
To counter the data hole present at most corporations, Palantir created boot camps the place clients work one-on-one with Palantir engineers to develop these custom-made options. Evident in Palantir’s monetary outcomes, this removes the commonest hurdle for companies desirous to undertake AI.
In the third quarter, Palantir generated income of $726 million, which grew 30% yr over yr and seven% sequentially. At the identical time, earnings per share (EPS) of $0.06 soared 100%, marking its eighth consecutive quarter of profitability. As spectacular as that’s, it solely tells a part of the story.
Palantir’s U.S. industrial section, which incorporates a lot of its AIP income, grew 54% yr over yr, pushing its remaining deal worth (much like backlog) up 73%. When backlog is rising sooner than income, it gives perception into future potential, which is quickly bettering. The section’s buyer rely additionally soared, leaping 77%.
Let’s not overlook Palantir’s foundational authorities income, which grew 40% yr over yr and 15% quarter over quarter.
Another key indicator is the accelerating variety of contracts the corporate is signing. In Q3, Palantir inked 104 offers price at the least $1 million. This included 36 offers price $5 million or extra and 16 price at the least $10 million. It’s telling that many of those agreements have been reached simply weeks after a buyer participated in one in every of Palantir’s boot camps.
The firm has doubtless solely scratched the floor of the tidal wave of demand. According to international administration consulting agency McKinsey & Company, the generative AI market is predicted to be price between $2.6 trillion and $4.4 trillion over the subsequent 10 years. Palantir is nicely positioned to revenue from these brisk secular tailwinds.
While there’s little query Palantir has a vivid future, some buyers concern the inventory has gotten forward of itself, and Wall Street appears to agree. Of the 20 analysts who supplied an opinion in December, solely 4 fee it a purchase or sturdy purchase, 9 fee it a maintain, and the remaining seven fee it underperform or promote. Those who’re bearish on the inventory nearly universally cite its valuation because the catalyst for his or her dower outlook.
The numbers appear to assist that view. The inventory is presently promoting for 380 instances earnings and 69 instances gross sales — each of that are egregious by any stretch of the creativeness. However, essentially the most generally used metrics fall far quick when evaluating a high-growth firm. For instance, Palantir’s ahead worth/earnings-to-growth (PEG) ratio — which elements within the firm’s accelerating progress — clocks in at 0.63, whereas any quantity lower than 1 is the usual for an undervalued inventory.
Wedbush veteran tech analyst Dan Ives stays bullish, sustaining an outperform (purchase) ranking on Palantir with a $75 worth goal, although the inventory not too long ago eclipsed that concentrate on. The analyst expressed “elevated confidence within the game-changing AIP technique with use circumstances for AI taking maintain over the subsequent 12-18 months.” He went on to say that Palantir will see “unprecedented demand” as extra enterprises undertake and increase the usage of the corporate’s AI options.
Furthermore, whereas Palantir presently has a market cap of roughly $172 billion, Ives believes Palantir could possibly be “the subsequent Oracle.” Given Oracle‘s market cap of $494 billion, that means potential upside of 188% for Palantir. While that is a daring proclamation, it does illustrate the chance that exists. To be clear, that imaginative and prescient will take a while to play out if it does.
I’m not unsympathetic to the conundrum represented by the conflicting views. For those that nonetheless really feel Palantir is just too costly, one technique is to purchase a small place that will not break the financial institution and add to it subsequent time the inventory takes a nosedive — because it undoubtedly will. Another is to make use of dollar-cost averaging, which includes shopping for set greenback quantities of the inventory at particular intervals, which ends up in a decrease common value.
Palantir Technologies will not attraction to each investor. However, for these prepared to tackle some extra threat for doubtlessly explosive positive factors, Palantir sits on the crossroads of an unlimited alternative that might make for a really worthwhile funding.
Before you purchase inventory in Palantir Technologies, take into account this:
The Motley Fool Stock Advisor analyst crew simply recognized what they consider are the 10 greatest shares for buyers to purchase now… and Palantir Technologies wasn’t one in every of them. The 10 shares that made the reduce may produce monster returns within the coming years.
Consider when Nvidia made this record on April 15, 2005… for those who invested $1,000 on the time of our suggestion, you’d have $822,755!*
Stock Advisor gives buyers with an easy-to-follow blueprint for achievement, together with steering on constructing a portfolio, common updates from analysts, and two new inventory picks every month. The Stock Advisor service has greater than quadrupled the return of S&P 500 since 2002*.
See the ten shares »
*Stock Advisor returns as of December 9, 2024
Danny Vena has positions in Palantir Technologies. The Motley Fool has positions in and recommends Oracle and Palantir Technologies. The Motley Fool has a disclosure coverage.
The Nasdaq-100 Just Announced Its Latest Addition. The Stock Soared 1,090% Since Early Last Year, and It’s Still a Buy Heading Into 2025, According to a Certain Wall Street Analyst. was initially revealed by The Motley Fool
