Corporations today generate mountains of knowledge. That data may be of great value — but provided that it’s appropriately harnessed, visualized, and used to enhance decision-making. Often, though, that data lives in quite a lot of different software systems, with various chunks siloed away in platforms that may’t communicate with one another, complicating any effort to see the total picture. As an example, a company could have a customer services database, enterprise management software, a marketing platform, and more. Unifying the information from all of those platforms into one system and mining the integrated result for actionable insights is Palantir‘s (NYSE: PLTR) specialty, and why its services are in demand.
The Palantir Artificial Intelligence Platform (AIP) is its latest innovation, and it’s loaded with potential.
Clients are flocking to Palantir AIP
Imagine a wholesale supplier facing a severe weather event affecting one among its centers. Management must know probably the most efficient alternative methods for keeping its customers supplied, and what effect its selections could have on margins. Or perhaps you manage planning an organization’s inventory levels, and it is advisable know what impact a price increase or decrease could have on demand. Or you ought to automate your payment processing to suppliers by unifying documents like 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 like those in plain English and receive actionable responses. Selling a platform this complex is difficult. Examining use cases for other firms is useful, but it surely remains to be difficult to visualise how a platform like AIP will work in a particular company. For this reason, Palantir conducts “boot camps” where potential customers construct use cases unique to their businesses in only days. These have proven a terrific tool to extend Palantir’s client base — its U.S. business customer count is exploding.
In the primary quarter, that translated to a 40% year-over-year increase in U.S. business sales to $150 million and 27% worldwide business sales growth to $299 million. Government revenue grew by a slower 16% to $335 million. Penetrating the business market will likely be critical to Palantir’s long-term success.
Total sales in Q1 rose 21% 12 months over 12 months to $634 million, and Palantir increased its profitability. But not everyone seems to be convinced.
Examining the Palantir bear case
Palantir enjoys a big following amongst retail investors, and has inspired spirited debates between its bulls and bears during the last several years. The corporate is methodically putting most of the bear arguments to bed. I’ll take you thru two of them.
First, many lamented the corporate’s persistent unprofitability. This was legitimate criticism as the corporate racked up annual losses until 2023, when it achieved profitability. Palantir has posted net profits within the last six quarters and dramatically increased operating profits.
Second, Palantir bears identified the corporate’s extensive use of stock-based compensation to reward employees. Probably the most significant slice of such distributions often goes to the highest executives. The results of issuing a lot of latest shares to pay your team, nonetheless, is that the variety of outstanding shares increases and shareholders’ portions of the pie decrease. Nonetheless, Palantir has been dialing back its stock-based compensation as its revenue has been ramping up.
Using stock-based compensation also helps firms preserve their money. Palantir finished Q1 with $3.9 billion in money and investments on its books and no long-term debt.
Is Palantir stock a buy?
Another excuse some investors remain within the Palantir bear camp is its high valuation. The stock trades at nearly 25 times current sales. That is a lower price-to-sales ratio than CrowdStrike and the next one than Snowflake — each of which, like Palantir, are high-growth software firms with market caps below $100 billion.
The stock can be trading at the next valuation than its historical average. Nonetheless, Palantir is probably the most profitable of those three tech firms. Over its last 4 reported quarters, Palantir produced nearly $200 million in operating profits, in comparison with $24 million for CrowdStrike and a lack of $1.2 billion for Snowflake.
Investors can afford to be patient in the event that they decide to buy Palantir stock. The perfect strategy could be to construct your stake in it progressively and commonly over time so you may reap the benefits of any dips in the value that may occur. A dollar-cost averaging strategy can reduce short-term risk when investing in high-priced stocks.
Palantir has entrenched itself as a pacesetter in data and artificial intelligence management. Although its valuation is high, its profits are growing and it’s in a robust financial position to excel over the long run.
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Bradley Guichard has positions in CrowdStrike. The Motley Idiot has positions in and recommends CrowdStrike, Palantir Technologies, and Snowflake. The Motley Idiot has a disclosure policy.
Palantir’s Untapped Potential: Decoding the Artificial Intelligence (AI) Stock’s Long-Term Value for Strategic Investors was originally published by The Motley Idiot