Shares of information mining and artificial intelligence (AI) specialist Palantir Technologies (NYSE: PLTR) have popped by a powerful 47% to this point in 2024.
Palantir surpassed consensus revenue estimates and met the adjusted earnings-per-share estimates in the primary quarter of 2024. Despite blockbuster numbers, the stock tanked by nearly 15% after releasing this quarterly result as investors were upset with the corporate’s conservative revenue guidance for full-year fiscal 2024.
Since then, Palantir stock has gained back all of its losses, mainly driven by some recent profit-taking in semiconductor/AI stocks and market rotation from semiconductor stocks to software stocks. Nevertheless, there remains to be quite a bit to love on this software-as-a-service (SaaS) player, known for its exceptional ability to mine mounds of presidency and enterprise data for actionable insights.
Listed below are three reasons investors should pick up a stake in Palantir now.
1. Unleashing the ability of AI
Since its launch, Palantir’s large language model-powered Artificial Intelligence Platform (AIP) has witnessed solid customer adoption. Leveraging data analytics and machine learning, AIP helps enterprises move “beyond chat” and deploy AI solutions effectively to drive real business value.
Palantir’s AIP applies ontology and data integration technologies to enable customers to deploy AI solutions, even with messy underlying data. AIP helps convert unstructured data including emails, Slack messages, PDFs, comments, audio, and pictures into structured actions and outputs. That is in contrast to competitors who claim that only 10% of a customers’ data is AI-ready.
Palantir’s boot camp-based, go-to-market strategy can also be proving a hit. Greater than 900 organizations had participated within the bootcamps by the top of the primary quarter. The corporate has also rolled out Construct with AIP (tutorials and reference implementations) to enable customers to effectively use AIP for constructing AI solutions. Subsequently, AIP helps Palantir with recent customer acquisitions in addition to expansions in existing customers.
Strong U.S. business business, and reacceleration in government business
The U.S. business business was undoubtedly the star performer for Palantir in the primary quarter, growing revenue by 68% yr over yr, excluding strategic investments. This trend is predicted to proceed in 2024, driven mainly by the increasing adoption of the corporate’s AIP platform. Palantir noted a strong 69% year-over-year U.S. business customer count in the primary quarter. Not surprisingly, the corporate has increased its full-year fiscal 2024 growth outlook for this customer cohort from the previous estimate of 40% to 45%.
Palantir’s U.S. government business also demonstrated strength, with revenue growing 8% yr over yr in the primary quarter, an acceleration from 3% year-over-year growth within the previous quarter. The corporate secured over $178 million from the U.S. Army for a project under the Tactical Intelligence Targeting Access Node (or TITAN) program, enabling it to assist the military detect enemy targets.
The project has made the corporate the primary software company to be awarded a first-rate contract (direct contract with the federal government agency) for a hardware production project. By positioning itself as a “software prime,” Palantir may witness much more opportunities within the U.S. defense sector.
Government business involves significant vetting of vendors and is inherently sticky. Hence, although this business is growing more slowly than the business business, it provides a stable revenue base for Palantir. Moreover, in the present era of geopolitical tensions, Palantir’s government-focused software solutions have turn out to be much more relevant and might even see robust growth in the approaching years.
Impressive financials
Investor response to Palantir’s fiscal 2024 revenue guidance seems short-sighted for the reason that company’s top-line growth will likely be lumpy within the early stages of the continued AI transformation. The corporate’s financial performance will turn out to be increasingly more predictable, with the advancement and adoption of AI technologies worldwide.
Nevertheless, Palantir’s profitability has been improving at a gentle pace. The corporate recorded a generally accepted accounting principles (GAAP) net income of $106 million in the primary quarter, marking its sixth consecutive quarter of GAAP profitability. The corporate also reported a GAAP operating income of $81 million and an adjusted operating margin of 36%. Palantir’s Rule of 40 rating (an indicator of the corporate’s revenue and profit performance) also rose from 54 within the fourth quarter of 2023 to 57 in the primary quarter of 2024.
Palantir can also be generating money at a strong pace. The corporate reported $130 million in money from operations and $149 million in adjusted free money flow in the primary quarter. It ended the primary quarter with $3.9 billion in money, a resource that provides it sufficient financial flexibility to take a position in growth initiatives.
Trading at 24 times trailing-12-month sales, Palantir stock will not be low-cost. Nevertheless, the premium valuation seems justified considering the mission-critical nature of its software in multiple government operations and the rapidly expanding business business. Hence, it is smart to take a position on this high-flying stock now.
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Manali Pradhan has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Palantir Technologies. The Motley Idiot has a disclosure policy.
3 Reasons to Buy Palantir Like There’s No Tomorrow was originally published by The Motley Idiot