Few corporations have reacted more to Trump’s presidential election victory than Palantir Technologies(NYSE: PLTR), a knowledge analytics and artificial intelligence (AI) company with a powerful deal with defense and law enforcement. The corporate has added billions to its market cap, with shares up by a jaw-dropping 50% because the election.
But is Palantir’s recent rally based on hype and excitement or sustainable economic fundamentals? Let’s dig deeper into what the subsequent 12 months could have in store for this unique technology leader.
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Founded in 2003, Palantir is arguably an early AI company. Its software-as-a-service platforms are designed to extract insights from large volumes of raw data to assist organizations notice patterns, improve efficiency, and generate growth. The implementation of the large language model (LLM) technology behind algorithms like ChatGPT allows it to perform these tasks faster and deliver real-time insights.
It is a hugely competitive industry, with cloud computing giants like Microsoft, Snowflake, and Amazon offering similar services. Nonetheless, Palantir seeks to distinguish itself with a deal with tailor-made solutions that may emphasize security.
The corporate offers its services through three core platforms: Gotham, Foundry, and the Artificial Intelligence Platform (AIP). Gotham helps government clients with decision-making, intelligence gathering, and military targeting. Foundry focuses on finding business efficiencies and trends for corporate clients, while Palantir’s AIP helps every type of organizations create and deploy AI applications.
If stock price trends are anything to go by, Trump’s presidential election victory has boosted optimism for Palantir’s stock. While stock moves don’t all the time have a tangible rationale behind them, this trend can have something to do with Palantir’s role within the previous Trump administration when it helped Immigration and Customs Enforcement (ICE) with tracking down and deporting undocumented immigrants.
The customized data analytics solution called Falcon (which Palantir created for ICE) uses data amassed from government surveillance networks and public records to assist agents plan future raids and operations. While the tools attracted a terrific deal of negative publicity from the media and activists, Palantir didn’t back down — allowing it to maintain the contract and positioning it for future controversial deals.
Image source: Getty Images.
That said, the Falcon contract only generated $127 million between 2013 and 2022, which is not a game-changing amount for Palantir. Moreover, Business Insider reports that the corporate may lose the contract as ICE moves to other service providers. Investors should have a look at Palantir’s overall financial position as a substitute of specializing in this relatively minor and unsure revenue stream.
Within the third quarter, Palantir’s revenue grew 44% yr over yr to $499 million. And while government clients still make up 64% of sales, its business business is growing fast — jumping 54% to $179 million within the period. It looks like corporate clients aren’t turned off by Palantir’s controversial government work. And it might probably also hold its own in highly competitive generative AI and data analytics opportunities.
That said, a terrific company just isn’t all the time a terrific investment if its valuation is out of line with its fundamentals. And with a forward price-to-earnings (P/E) multiple of 143 on the time of this writing, Palantir’s stock is just too expensive, even considering its healthy growth rate.
For context, the S&P 500 has a forward estimate of around 25. And AI industry leader Nvidia has a forward P/E of just 36, despite boasting a significantly faster top-line growth rate of 122% within the third quarter. With this in mind, Palantir looks poised for a big correction over the subsequent 12 months. And potential investors should tread with caution.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Amazon, Microsoft, Nvidia, Palantir Technologies, and Snowflake. The Motley Idiot recommends the next options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure policy.