Artificial intelligence (AI) has sent shockwaves through the tech market, not just benefiting mega-caps like Nvidia, Microsoft, and Amazon, but also newer players like Palantir Technologies. Born in 2003, Palantir now stands tall in the data analytics and software solutions realm, with a staggering 167% growth last year, far surpassing the S&P 500 Index.
Palantir is currently up 36.8% year-to-date in 2024, with Wall Street forecasting a potential 49% surge in the next 12 months. The company’s financial prowess has even triggered talks of its imminent inclusion in the esteemed S&P 500 Index.
Palantir’s Business Model: a Solid Foundation
Since its inception in mid-2023, Palantir’s flagship product, the Artificial Intelligence Platform (AIP), has been a remarkable success, employing AI, machine learning, and data visualization to unlock actionable insights from vast datasets. CEO Alex Karp proudly attests to the momentum AIP has created, fueling revenue growth and expanding the customer base.
While government contracts form a significant portion of Palantir’s revenue stream, the company’s reach extends to a diverse commercial clientele spanning defense, healthcare, finance, and manufacturing sectors. This breadth shields Palantir from over-reliance on any single industry, fortifying its market resilience.
Government-centric Gotham and commercial-focused Foundry platforms underline the company’s tailored approach to different client needs, driving revenue diversification and strategic expansion.
Palantir’s latest financial report for the fourth quarter of 2024 showcases a robust 11% year-over-year rise in government revenue, securing its position as a top player in the field.
What Lies Ahead in 2024?
Recent wins, such as the monumental $178.4 million contract with the U.S. Army for the Tactical Intelligence Targeting Access Node (TITAN) system, signal a promising trajectory for Palantir. Collaborations like the demining partnership with Ukraine’s Ministry of Economy underscore Palantir’s global footprint and strategic vision.
Government contracts not only offer long-term stability but also foster enduring client relationships, providing Palantir with a steady revenue stream and credibility in the market.
Strategic unions with entities like CAZ Investments further bolster Palantir’s reach and influence, propelling the company towards sustained growth and innovation.
Analyzing Palantir Technologies: A Contrarian Case for Investment
The Projections and Performance
In 2023, Palantir Technologies experienced a notable 17% increase in total revenue to $2.23 billion. Looking forward, management is eyeing even more promising figures, with an anticipated revenue of $2.65 to $2.69 billion in 2024. Analysts are equally optimistic, forecasting a 20.4% revenue growth to $2.68 billion and a substantial 30.6% surge in earnings to $0.33 per share for the fiscal year 2024.
In the subsequent year of 2025, Palantir’s revenue and earnings are expected to grow by 20.4% and 20.3%, respectively. However, despite these impressive numbers, the stock is trading at 62 times forward earnings and 16 times forward sales, leading many analysts to consider it overvalued.
Financial Health and Investor Sentiment
Palantir’s balance sheet showcases remarkable strength, boasting $3.7 billion in cash, cash equivalents, and short-term U.S. treasuries by the end of 2023. Additionally, the company reported $731 million in adjusted free cash flow (FCF) in 2023 with plans to generate $800 million to $1 billion in the current year.
Market analysts have shown confidence in Palantir, with recent upwards revisions in earnings estimates by a factor of 16 and 12 upward revisions in revenue estimates. These positive adjustments reflect faith in the company’s products and the management’s strategies for driving growth.
Wall Street Perspectives
While there is an acknowledgment of Palantir’s growth potential, Wall Street maintains a cautious stance on the stock, overall rating it as a “hold.” Out of 14 analysts covering Palantir, opinions vary with two suggesting a “strong buy,” one proposing a “moderate buy,” six rating it as a “hold,” one recommending a “moderate sell,” and four giving it a “strong sell” status.
Despite closing above the mean target price of $20.67, Palantir’s high target price of $35 indicates a potential upside of 48.9% over the next 12 months, providing a glimmer of hope for investors.
The Case for Investment
For investors seeking exposure to the realm of Artificial Intelligence (AI), Palantir presents a compelling opportunity, currently trading at approximately $24 per share. The progression of the AIP platform, touted to become the “dominant platform for the entire industry” by CEO Alex Karp, is expected to unveil further potential.
Amidst concerns about its valuation, Palantir’s robust financial standing, remarkable revenue and earnings growth, as well as strategic collaborations, make a convincing argument for investment. Furthermore, the potential inclusion in the S&P 500 could be a catalyst for a surge in stock price.
Although doubts loom over Palantir’s valuation, the company’s long-term prospects shape a compelling narrative for those willing to venture off the beaten path.
