Palantir Technologies (NYSE: PLTR) has emerged as a standout player in the realm of artificial intelligence (AI). With a history spanning about two decades, Palantir has recently witnessed a remarkable surge in earnings, catalyzed by the introduction of the Artificial Intelligence Platform (AIP) just last year. Notably, the company has transitioned from primarily government contracts to capturing significant interest from commercial clients.
This shift has propelled Palantir’s stock to skyrocket by 150% this year, reaching unprecedented levels. Despite trading at valuations notably exceeding Wall Street’s average price estimate of approximately $28, the burning question lingers–is it wise to purchase Palantir at its peak or exercise caution?
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The Transformative Power of Data for Palantir’s Customers
Palantir’s journey so far has revolved around aiding governments, companies, and organizations in harnessing and leveraging their data effectively. While this may not seem riveting on the surface, the outcomes are truly game-changing, often resulting in substantial cost savings and operational efficiency enhancements for clients.
For instance, Palantir’s systems at the Cleveland Clinic have been instrumental in optimizing patient placement, predicting bed availability, and elevating overall hospital efficiency. Similarly, United Airlines has turned to Palantir to streamline equipment management, ensuring maximum operational uptime. Post the implementation of this predictive maintenance system, United has recorded savings worth millions by averting flight delays and cancellations.
In its earlier phase, Palantir’s growth was propelled by government contracts, leading to a gradual yet consistent revenue increase. However, in recent times, fueled by the AIP launch, the company has witnessed double-digit revenue growth with a substantial uptick in its commercial segment–resulting in U.S. commercial expansion surpassing government revenue growth.
During the most recent quarter, U.S. commercial revenue surged by 55% to $159 million, and the count of U.S. commercial customers surged by 83% to nearly 300. Noteworthy is the fact that just four years ago, Palantir had merely 14 U.S. commercial customers, highlighting the astounding growth attained in this sector. Simultaneously, government revenue also witnessed significant progress, increasing by 23% in the quarter, showcasing the company’s ability to draw on both traditional revenue streams and tap into the burgeoning commercial opportunities.
“Unbridled Demand” and Palantir’s Growth Trajectory
Given the recent launch of AIP, Palantir finds itself in the nascent stages of this platform’s growth narrative, propelled by robust early demand. Chief Executive Officer Alex Karp described the demand as “persistent and unbridled,” signaling no signs of abating.
A testament to this soaring demand is Palantir’s innovative approach to acquiring new clientele. The introduction of AIP boot camps has enabled the company to familiarize potential users with the platform and facilitate the swift creation of use cases in mere hours. In a recent earnings call, Palantir reported clinching a seven-figure deal with a major wholesale insurance broker approximately two weeks post a boot camp, underscoring the effectiveness of this strategy and its pivotal role in driving substantial growth.
Notably, Palantir achieved its highest-ever quarterly profit in the latest quarter, raking in $134 million in net income.
Evaluating Palantir’s Prospects Amid Pricy Stock Valuations
The landscape seems promising for Palantir, offering a ray of hope for investors inclined toward optimism. Nonetheless, the pressing question remains–should one invest in Palantir amidst its lofty valuations? Currently trading at over 122 times forward earnings estimates, the stock appears costlier than any of the technology stalwarts that steered stock market advancements earlier in the year with the Magnificent Seven stocks.
The decision to invest hinges on individual investment styles. For value investors or growth investors inclined toward bargain hunting, Palantir might not align with their investment strategy. However, for growth investors unfazed by the price tag today, anticipating a considerable positive shift in earnings in the coming years, Palantir could emerge as a compelling choice.
Palantir embarks on a nascent growth trajectory, buoyed by AIP and burgeoning demand from commercial clients, coinciding with the nascent stages of the AI market’s expansion. The present $200 billion AI market forecasts a potential surge to $1 trillion by the decade’s end, signifying vast prospects even for those considering entering the Palantir fold at its peak.
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