Meet the Newest Addition to the S&P 500. The Stock Has Soared 845% Since Early Last 12 months, and It’s Still a Buy Right Now, In response to 1 Wall Street Analyst.
The S&P 500(SNPINDEX: ^GSPC) is regarded by many because the best overall gauge of the U.S. stock market, because it includes the five hundred largest publicly traded corporations within the country. Given the breadth of companies that make up the index, it is taken into account to be probably the most reliable benchmark of overall stock market performance. To be considered for admission to the S&P 500, an organization must meet the next criteria:
At the least 50% of its outstanding shares should be available for trading
Have to be profitable based on generally accepted accounting principles (GAAP) in probably the most recent quarter
Have to be profitable throughout the preceding 4 quarters combined
Palantir Technologies(NYSE: PLTR) is one of the vital recent additions to the S&P 500, joining the benchmark on Sept. 23. That makes it one in every of only 11 corporations to make the cut to date this yr. Because the dawn of generative AI early last yr, Palantir stock has surged 845%, as its expertise in the sphere drove robust revenue and earnings growth.
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Given the stock’s parabolic move higher, some investors are leery of Palantir’s lofty valuation. Nonetheless, one Wall Street analyst believes that is only the start. Let’s take a take a look at what has fueled Palantir’s epic run, and if there’s additional runway ahead for growth.
Image source: Getty Images.
Palantir has been developing cutting-edge AI solutions for greater than twenty years. The corporate earned its pedigree devising sophisticated algorithms to serve the U.S. intelligence, military, and law enforcement communities. Its systems developed the uncanny ability to attach seemingly unrelated data to foil terrorist plots and convey wrongdoers to justice.
The corporate has expanded beyond its humble roots, bringing the identical data mining know-how to enterprise. Palantir’s AI and analytics systems dig through data and supply corporations with solutions to real-world problems.
When businesses began clamoring for useable AI last yr, Palantir was quick to develop its Artificial Intelligence Platform (AIP), a generative AI system that provided data-driven answers. The system leverages company-specific data to develop made-to-order solutions.
One in every of the first hindrances to adopting AI is that the majority corporations lack the expertise to start. Palantir developed a go-to-market strategy that takes that issue off the table. The corporate arrange boot camp sessions that pair customer representatives with Palantir engineers to make sure they develop the AI solutions they need. This strategy has proven successful beyond the corporate’s wildest dreams.
Palantir’s quarterly report is teeming with customer testimonials detailing their success stories with AIP, and the evidence is obvious. Within the third quarter, Palantir closed 104 deals value at the least $1 million. Of those, 36 were value $5 million or more, while 16 were value at the least $10 million. The corporate said that lots of these agreements were consummated inside just weeks of the client attending a boot camp session.
Palantir’s overall results paint a compelling picture. Revenue grew 30% yr over yr to $726 million, while also climbing 7% quarter over quarter. This also marked the corporate’s eighth consecutive quarter of profitability, a streak that contributed to its acceptance into the S&P 500.
Perhaps more telling was Palantir’s U.S. industrial revenue, including AIP, which grew 54% yr over yr, while its customer count grew by 77%. This helped the segment’s remaining deal value (RDV) soar 73%. When RDV is growing faster than revenue, it provides insight into the corporate’s future prospects — that are rapidly improving. It also shows that Palantir is quickly moving beyond its reliance on government contracts.
While there is no consensus regarding the entire addressable marketplace for generative AI, the magnitude of the estimates might be instructional. In Ark Invest’s Big Ideas 2024, Cathie Wood concludes that the AI software market could surge to $13 trillion by 2030. The bull case is much more mind-boggling, at $37 trillion. Given Palantir’s expertise in the sphere and its success in helping customers implement AI solutions, it’s clear that the corporate has an extended runway ahead.
There is no denying Palantir’s lofty valuation, which has Wall Street split. Of the 19 analysts that covered the stock in October, six rate it a buy or strong buy, seven label it a hold, and the remaining six rate it underperform or sell. What’s almost universal among the many bears is concerns about its valuation — but looks might be deceiving.
The stock is currently selling for 160 times forward earnings and 40 times next yr’s sales. Nonetheless, its forward price/earnings-to-growth (PEG) ratio — which aspects in Palantir’s accelerating growth rate — is available in at 0.5, when any number lower than 1 is the usual for an undervalued stock.
I’m not the just one who believes the stock remains to be a buy. Within the wake of its admission to the S&P 500, Greentech Research analyst Hilary Kramer opined that Palantir “easily might be” a $100 stock.” That represents potential gains for investors of 65% in comparison with Wednesday’s closing price.
The analyst cites Palantir’s robust and accelerating revenue and profit growth and growing backlog as catalysts for a revaluation of the stock.
For investors still convinced Palantir is just too expensive, dollar-cost averaging provides a mechanism to construct a position over time, adding more shares when the multiple is more attractive.
To be clear, Palantir Technologies won’t be a fit for each portfolio. Nonetheless, for those with an appropriate investing time horizon — and a cast-iron structure — Palantir is tapping an enormous opportunity throughout the AI ecosystem, which might be extremely profitable for investors.
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Danny Vena has positions in Palantir Technologies. The Motley Idiot has positions in and recommends Palantir Technologies. The Motley Idiot has a disclosure policy.