Shares of Palantir Technologies (PLTR) have surged 205% in the past year, driven by the excitement around AI stocks and Palantir’s sustained profitability. However, concerns about overvaluation have caused analysts to rate PLTR between a Hold and Moderate Sell, leading to a 15% decline from its March highs. Investor optimism for Palantir’s AI tools has been tempered, with anticipation building for the company’s first-quarter earnings report on May 6.
Palantir’s sales have historically been derived from government contracts, with 55% of its 2023 revenues coming from this sector. The company is now focused on its fast-growing commercial business, offering AI Platform (AIP) to help enterprises manage and interpret data. The demand for AIP is high, according to Palantir’s CEO Alex Karp, with the company aiming to leverage generative AI applications to provide valuable insights for businesses.
Despite a turbulent stock history, Palantir achieved profitability in 2023 for the first time. The company has consistently outperformed its guidance in terms of profitability, with GAAP net income tripling and operating income expanding significantly in the fourth quarter of 2023. Palantir’s U.S. commercial business also saw strong growth, with revenue increasing more than 70% year over year and new partnerships forming with tech giants like Oracle and Microsoft.
Palantir’s AI Platform is seen as a key driver of future growth, with significant interest leading to new customer acquisitions and expanded relationships with existing clients. The company’s reacceleration in the U.S. government business in 2024 is expected to further drive growth, with new contracts like the $178 million U.S. Army deal for project Titan. Palantir believes that its revenue growth will be sustained by accelerating new client acquisition through boot camps and expanding existing customer relationships.
While Palantir’s long-term outlook appears strong, there are risks and challenges to consider. The company’s decision not to engage with China, a major global economy, could impact future business prospects. Additionally, Palantir’s governance structure, which gives founders Alex Karp and Peter Thiel super voting powers, could pose challenges in the future. Competition in the industry could also be a threat to Palantir’s growth.
As investors await Palantir’s upcoming earnings report on May 6, the company’s performance is likely to have a significant impact on PLTR stock’s near-term performance. If Palantir beats revenue and EPS estimates, a post-earnings rally could be expected. However, the decision to invest in PLTR should be based on individual research and analysis, as the stock’s post-earnings rally typically extends into subsequent sessions. Ultimately, Palantir’s growth narrative, fueled by the AI boom and rising data challenges, presents both opportunities and risks for investors.
