Palantir came to the scene in 2023 after a successful launch into the world of artificial intelligence (AI).
The excitement around artificial intelligence (AI) is driving markets to new heights. both of them S&P 500 And Nasdaq Composite has eclipsed new records in just the first few months of the year.
Most of these gains are thanks to the “Magnificent Seven” — a catchy moniker used to describe the world’s largest companies. Microsoft, apple, Nvidia, the alphabet, Amazon, TeslaAnd Meta platforms. But savvy investors understand that there are many more opportunities in the AI realm than just megacap tech.
One company that is emerging as a leader is a big data analytics software company. Palantir Technologies (PLTR -0.74%). 2023 was a breakout year for the company as it released its fourth major product: the Palantir Artificial Intelligence Platform (AIP).
AIP’s spectacular success helped accelerate Palantir’s revenue and profits — and investors took notice. But with shares up nearly 180 percent in the past year, is it too late to buy the company’s stock?
Wedbush Securities analyst Dan Ives believes the stock has a lot of room to grow. His price target of $35 per share is about 59% above the company’s current trading levels, as of the market close on April 10.
Read on to find out why picking up shares in Palantir could be a lucrative opportunity right now.
The rise of the Palantir artificial intelligence platform
For many years, Palantir sold three core software products: Apollo, Gotham, and Foundry. But last April, it quietly announced its foray into artificial intelligence (AI) after the release of AIP. But AIP’s launch was largely overshadowed by moves the tech giant was making — including investments in ChatGPT developer OpenAI and its rivals.
To spread the word about AIP, Palantir resorted to a creative lead generation strategy. Namely, the company started hosting immersive seminars called “bootcamps.” During these sessions, potential customers were able to demo Palantir’s various software platforms. The idea behind it was to showcase Palantir’s tech chops in a tangible way while also helping business leaders identify and build use cases around artificial intelligence (AI).
Since the launch of this campaign, Palantir has hosted more than 850 bootcamps. Additionally, AIP customers have publicly demonstrated how the product is being used to uncover new insights in a myriad of applications.
Although AIP has only been commercially available for a year, its early success is encouraging. Palantir expects to grow its customer base by 35 percent year-over-year in 2023 and is expanding into the private sector. During the fourth quarter alone, the company grew its US commercial revenue by 70%.
Image source: Getty Images
The journey is just beginning.
Sure, accelerating revenue is always nice. For Palantir, that’s especially meaningful because the company has received some pushback over the years from Wall Street skeptics — many of whom see the company as the U.S. military and its Western allies. It also relies heavily on government contracts.
However, AIP is proving that Palantir has legitimate tech capabilities that are attracting customers from across industries beyond the public sector. Considering the pulse of big tech within the overall AI landscape, Palantir is proving it can compete with the biggest companies.
I see 2023 as the first chapter in a long story in the AI narrative for the company. It’s moving fast, and other behemoths in tech are eager to work with the Palantir AIP. It is well positioned to continue strong earnings growth while maintaining a healthy profitability profile and strong balance sheet.
A premium assessment that is worth the price.
The chart below illustrates how Palantir benchmarks against a group of other leading AI software-as-a-service (SaaS) businesses based on price-to-sales (P/S). At a P/S of 23.1, based on this metric, Palantir is the most expensive stock in this peer set.
PLTR P/S Ratio data by YCharts.
Palantir’s valuation multiple increased dramatically after its fourth-quarter earnings report in February. Since then, the stock has experienced some momentum and is just now starting to breathe.
Also, it’s not just revenue growth that’s impressive for Palantir. The overall financial picture of the company is strong. The success of the bootcamps has allowed Palantir to keep sales and marketing costs relatively low. As such, the company is consistently profitable — unlike many of its competitors.
In 2023, Palantir grew its operating margin by 6%. That trickled down to the bottom line, as the company generated $730 million in free cash flow in 2023 — more than tripling year-over-year.
With shares trading at such a premium to the competition, investors may be tempted to take some profits and sell. But I would encourage investors to zoom out and look at the bigger picture.
While the AIP has acted as a catalyst for Palantir’s business and played an influential role in the excitement driving the stock higher, the company’s shares are still 40% below their all-time highs. Now is a great time to snap up the shares, as Palantir continues to capitalize on long-term secular themes in AI.
Using dollar cost averaging is a smart strategy for starting a position or adding to an existing one. With so much potential, it’s hard to look past Palantir.
Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. Randy Zuckerberg, former director of market development and spokeswoman for Facebook and sister of MetaPlatforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Spotako holds positions in Alphabet, Amazon, Apple, MetaPlatforms, Microsoft, Nvidia, Palantir Technologies, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, DataDog, MetaPlatforms, Microsoft, MongoDB, Nvidia, Oracle, Palantir Technologies, Salesforce, ServiceNow, Snowflake, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a Disclosure Policy.