Palantir's Untapped Potential: Decoding the Long-Term Value of Artificial Intelligence (AI) Stocks for Strategic Investors

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Here's why so many investors love this battleground stock — and why so many others don't.

Companies today generate mountains of data. That data can be of great value — but only if it's properly harnessed, visualized and used to improve decision-making. Often, though, that data resides in disparate software systems, siled into different pieces across platforms that can't communicate with each other, complicating any attempt to see the whole picture. They make For example, a corporation may have a customer services database, enterprise management software, a marketing platform, and more. Integrating data from all these platforms into one system and mining integrated results for actionable insights. PalantirOf (PLTR 0.44%) feature, and why its services are in demand.

The Palantir Artificial Intelligence Platform (AIP) is its latest innovation, and it's packed with potential.

Clients are flocking to Palantir AIP.

Imagine that a wholesale supplier experiences a severe weather event that affects one of its centers. Management needs to know the most efficient alternative ways to supply their customers, and how their choice will affect margins. Or perhaps you manage to plan the company's inventory levels, and you need to know how a price increase or decrease will affect demand. Or you want to automate your payment process to suppliers by consolidating documents such as purchase orders, invoices and warehouse receipts. These are all use cases for Palantir's AIP.

AIP uses large language models that enable its clients to ask questions in plain English and receive actionable answers. It is difficult to sell the platform to this complex. Examining use cases for other companies is helpful, but it's still difficult to imagine how a platform like AIP will work in a specific company. Because of this, Palantir holds “bootcamps” where potential customers create unique use cases for their business in just days. These have proven to be a powerful tool for expanding Palantir's client base — its US commercial customers are on the rise.

Source: Palantir.

In the first quarter, this translated to a 40 percent year-over-year increase in U.S. commercial sales to $150 million and a 27 percent increase in worldwide commercial sales to $299 million. Government revenue increased by 16 percent to $335 million. Penetrating the commercial market will be critical to Palantir's long-term success.

Total sales rose 21% year-over-year to $634 million in Q1, and Palantir increased its profits. But not everyone is convinced.

Examining the Palantir Bear Case

Palantir has a large following among retail investors, and has inspired heated debates between its bulls and bears over the years. The company is methodically putting many of the bear's arguments to bed. I'll take you through two of them.

At first, many lamented the company's continued unprofitability. This was justified criticism as the company projected annual losses until 2023, when it turned a profit. Palantir has posted a net profit in the last six quarters and increased operating profit dramatically.

PLTR Net Income (Quarterly) data via YCharts.

Second, Palantir Bears pointed to the company's extensive use of stock-based compensation to reward employees. The most important part of such distribution usually goes to superiors. However, the result of issuing large numbers of new shares to pay your team is that the number of outstanding shares increases and shareholders' pieces of the pie decrease. However, Palantir is dialing back its stock-based compensation as its earnings grow.

PLTR stock-based compensation (TTM) data via YCharts.

Using stock-based compensation also helps companies preserve their cash. Palantir ended Q1 with $3.9 billion in cash and investments and long-term debt on its books.

Is Palantir Stock a Buy?

Another reason some investors remain in the Palantir bear camp is its high price. The stock trades at about 25 times current sales. It is the ratio of sales to the lower price. Crowd strike And higher than that Snowflake — Both of these, like Palantir, are high-growth software companies with market caps under $100 billion.

PLTR PS ratio data via YCharts.

The stock is also trading above its historical average. However, the most profitable of these three tech companies is Palantir. Over its last four reported quarters, Palantir made about $200 million in operating profit, compared with losses of $24 million for CrowdStrike and $1.2 billion for Snowflake.

Investors can afford to be patient if they choose to buy Palantir stock. The best strategy would be to gradually and regularly build your stake over time so that you can take advantage of any declines in price. A dollar-cost averaging strategy can reduce short-term risk when investing in high-value stocks.

Palantir has established itself as a leader in data and artificial intelligence management. Although it is overvalued, its profitability is growing and it is in a strong financial position for the long term.

Bradley Guichard has positions at CrowdStrike. The Motley Fool has positions in and recommends CrowdStrike, Palantir Technologies, and Snowflake. The Motley Fool has a Disclosure Policy.

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