Near a 2-Year High, Is Palantir Technologies Stock Still a Buy?


Artificial intelligence (AI) technology has existed for decades, but recent advancements have taken these sophisticated algorithms to the next level. Businesses of all sizes have been captivated by the potential for increased productivity, sparking something of an AI gold rush. Investors recognized the opportunity to cash in on this secular tailwind, buying up shares of companies positioned to profit from the trend.

Palantir Technologies (NYSE: PLTR) is one such company. The company first made a name for itself among government agencies for its ability to ferret out terrorist plots before they could succeed. The company has expanded beyond government contracts to provide data mining and business analytics services for commercial enterprises.

Thanks to its decades of AI experience in the field, Palantir pivoted quickly when generative AI burst onto the scene. The company has developed an intriguing approach to help its customers get the most out of AI, and this strategy is paying off in a big way.

A person leaning on their hand inspecting various lines of AI code.A person leaning on their hand inspecting various lines of AI code.

Image source: Getty Images.

The advent of AI

Businesses are always looking for ways to boost their bottom line, which is why the adoption of generative AI is accelerating. These AI systems can make short work of a growing number of time-consuming tasks, freeing up workers to focus on more important things. For example, these systems can:

  • Prioritize and summarize emails and draft responses

  • Create tables or charts based on existing data

  • Search the internet or internal company systems for data or documents

  • Draft original documents and suggest revisions

  • Write and debug computer code

  • Create presentations with a few prompts.

While these systems are far from perfect — and still require human review — it’s easy to see how these automation systems can save time. And as the old saying goes, time is money.

A unique approach

The vast diversity of the workforce means different jobs have different priorities. By identifying the most repetitive and time-consuming tasks, generative AI systems can be tailored to meet the needs of a specific job or company. That’s what makes Palantir’s approach so brilliant.

The company created its Artificial Intelligence Platform (AIP) to develop generative AI solutions that address real-world business problems. Palantir works with businesses to identify mission-critical needs and high-value use cases. They then embark on “immersive, hands-on-keyboard sessions [that] allow new and existing customers to build live alongside Palantir engineers, all working toward the common goal of deploying AI in operations.” This reportedly helps businesses “go from zero to use case in just one to five days.” Palantir says it has a “growing backlog of AIP Bootcamps due to the overwhelming demand.”

Consider this gem, dropped by chief revenue officer Ryan Taylor during Palantir’s earnings call last month:

In October, we set a goal of executing 500 AIP Bootcamps within one year. We have already blown that goal out of the water, having completed more than 560 Bootcamps across 465 organizations to date … We’re already seeing evidence of Bootcamps helping to significantly compress sales cycles and accelerate the rate of new customer acquisition.

That strategy is bearing fruit, as evidenced by Palantir’s fourth-quarter results. U.S. commercial revenue grew 70% year over year and 12% sequentially, driven by strong demand for AIP. Furthermore, for 2024, management is guiding for the segment to grow at least 40% — which could end up being conservative.

A new two-year high

Excitement regarding the rapid adoption of AI and Palantir’s recent blockbuster results have sent the stock soaring 240% over the past year. Its valuation has risen as well with the stock trading at 77 times forward earnings estimates and 17 times expected 2025 revenue. That might seem prohibitively expensive — at least at first glance — but those numbers only tell part of the story.

These metrics fail to take into account the company’s accelerating growth trajectory. On the other hand, the stock’s forward price/earnings-to-growth (PEG) ratio — which factors in Palantir’s multiyear growth outlook — is less than 1, the standard for an undervalued stock.

With decades of real-world experience, a brilliant go-to-market strategy, and strong secular tailwinds, Palantir has a solid foundation and a clear path forward. I would argue that even at a two-year high, Palantir stock is a buy.

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Danny Vena has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.

Near a 2-Year High, Is Palantir Technologies Stock Still a Buy? was originally published by The Motley Fool



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