Should You Buy Palantir (PLTR) Stock? | Investing

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Palantir Technologies Inc. (ticker: PLTR) released promising fresh quarterly results on Feb. 5 after the closing bell, and its shares soared 25% by the next afternoon, reflecting investors’ high hopes for this artificial intelligence-driven data analytics software company.

Ahead of the fourth-quarter report, a FactSet survey of leading market analysts called for 100% earnings growth to 8 cents a share, with revenue rising nearly 19% to $602.4 million. Palantir met earnings expectations and blew past revenue estimates, reporting an increase of 20% to $608.4 million.

Analysts had also pegged fourth-quarter government revenue at $333 million, with commercial revenue of $271 million. Palantir missed estimates on the government side, reporting $324 million in revenue, though that was still an 11% increase year over year. However, it had a significant beat on commercial revenue, which rose 32% to $284 million.

Prior to the Feb. 6 rally, Palantir’s stock had taken a big step back, down about 20% over the previous six months. Following the earnings blowout, PLTR shares are up roughly 160% for the past year at the time of writing.

Here are some talking points on Palantir that tend to come up in discussions of whether PLTR stock is a good buy for investors:

Palantir operates in an enviable software market sweet spot, with a full client list in both the commercial enterprise and federal government sectors. About 60% of Palantir’s revenue comes from the federal government, which uses its products mostly for defense applications.

Its previous share-price woes stemmed from lower government spending and an emerging buzz that Palantir’s AI data and software tools were priced higher than the competition’s, causing some clients to reconsider their partnership with the company. Recent Q4 results suggest, however, that analysts may have underestimated the deal-making power of Palantir’s innovative Artificial Intelligence Platform (AIP).

It’s true, though, that government sales did not appear to keep up with expectations. “Government agencies are changing the way in which they work with Palantir,” notes Rishi Jaluria, an RBC Capital Markets software analyst, in a recent research note. “They don’t want to put all their eggs in one basket because Palantir is expensive.”

On the upside, Palantir is diversifying its client base beyond the military defense sector and is expanding into the health care, retail and manufacturing sectors.

New Retail Endeavors

On Feb. 1, Palantir announced a three-year partnership with Coles Supermarket Australia Pty Ltd. (COL.AX), a major supermarket chain. The deal will allow Coles to use Palantir’s AIP to mine fresh data on workforce spending and on consumer shopping habits across all of its 840 supermarkets.

The deal is a good example of PLTR getting out of its government business comfort zone and working with new companies and sectors.

“Our partnership with Coles – an iconic Australian retailer – demonstrates the strength of our Australian commercial business and continues our growth in the retail industry globally,” said Ashwin Rajan, head of Palantir’s commercial business in Australia.

Health Care Expansion

Palantir is building new software applications for the health care sector, too. The company recently rolled out a new data acquisition partnership with the University of Colorado Anschutz Medical Campus as part of the National Institutes of Health’s All of Us Research Program. It also inked a three-year deal with Option Care Health, the largest independent home and alternate site infusion services provider in the U.S.

The goal of these endeavors is to boost patient outcomes. OCH, for example, will use Palantir’s AIP to improve “nurse scheduling, patient onboarding, purchasing optimization and supply chain execution,” according to a company statement on Jan. 8.

Continued Government Focus

The AI giant is also partnering with Carahsoft Canada, a widely used government IT solutions provider, to “expand and accelerate delivery of Palantir’s operating systems across the Canadian public sector,” Palantir noted on Jan. 25. Under the terms of the agreement, Carahsoft Canada will be the sole distributor of the Palantir platform under the Canadian government’s Software Licensing Supply Arrangement (SLSA).

But ultimately, Palantir’s continued diversification into new markets, building on its moves beyond its government customer base, is driving the recovery in PLTR shares from their lethargy late last year.

The current market outlook for PLTR shares is a blend of positive and negative signals, with the balance leaning to the upside.

“The substantial one-year gain suggests potential opportunities,” says Shawn Carpenter, chairman and CEO of Stock Alarm, a Chicago-based stock trading platform. “Palantir’s long-term prospects hinge on its ability to sustain growth and diversify its operations.”

Here’s how Carpenter sizes up Palantir’s market advantages and disadvantages in 2024:

Palantir’s Advantages

Revenue growth. Palantir has demonstrated its ability to secure substantial contracts on a regular basis, even outside its government wheelhouse. “That’s resulting in a significant revenue boost,” Carpenter says.

Diverse clientele. The company serves the commercial and government sectors and is expanding into other business realms, which “reduces its risk exposure to any single area,” he notes.

Government contracts. Palantir has positioned itself favorably as governments increasingly embrace data and AI technologies. The company counts the U.S. Army and the CIA as top clients.

Palantir’s Disadvantages

High valuation. The stock’s valuation is high, potentially deterring value-oriented investors, Carpenter notes. PLTR has a forward price-to-earnings ratio of 53 and a price-to-sales ratio of 20 as of Feb. 6, according to Finviz data. With Palantir forecasting commercial revenue growth of 40% in 2024, smashing estimates, the stock could still be a good buy, especially if the price happens to dip again.

Volatile performance. Palantir’s stock has experienced significant price swings. “That makes the stock less appealing to those investors opposed to such fluctuations,” Carpenter notes.

Competitive landscape. The AI and machine learning software industry is fiercely competitive, with numerous players vying for market share. With PLTR’s products and services priced higher than those of many AI vendors, that could crimp sales as customers look for lower-cost alternatives.

Buying or selling PLTR in early 2024 hinges on your investment style and risk tolerance. Some of that risk is external, as buzz over an AI “peak” seems to be taking hold on Wall Street.

“While some experts discuss 2024 as a potential peak year, it’s essential to recognize that AI represents more than just a trendy buzzword. It has transformative implications across various industries,” Carpenter says. “Investors should exercise discernment and focus on AI companies with unique strengths and adaptability to changing market dynamics. Palantir’s reputation as an early AI pioneer and its core strengths in data analytics and customized solutions position it favorably right now.”

PLTR’s focus and experience with all things AI and machine learning give Palantir a solid foundation for growth.

“Palantir is experiencing growth due to increased interest in AI stocks, sparked by the accessibility of ChatGPT,” says Michael Rechenthin, head of research and development at tastylive, a financial and investing broadcast network based out of Chicago. “The technology has been around for some time, but ChatGPT’s ease of use has drawn a new audience and, consequently, put Palantir’s business into the public spotlight.”

Palantir also has a big head start against new sector competitors.

“The nature of their business, government contracts within sensitive sectors like the CIA, offers Palantir a competitive advantage,” Rechenthin says. “It’s not an easy space for newcomers, given the time it takes to obtain necessary clearances and trusts. Palantir has been a significant player in developing many of today’s technologies in this field.”

Rechenthin says he’s optimistic about Palantir for the long term. “Its revenues have been increasing quarter by quarter, and the company has recently started to post positive net income,” he says.

There are some risks and caveats with PLTR stock, Rechenthin says, even as he predicts long-term upside.

“The conflict in Ukraine and investors’ inclination toward intelligence provision are driving factors for Palantir’s current positive momentum,” he says. “They have offices around the world. Basically, they are involved (allegedly) in everything from finding terrorists, COVID-19 tracking, and data gathering on China and Taiwan.”

In other words, he adds, “conflict is good for Palantir.”

The Case for Buying PLTR in Early 2024

Palantir’s diverse client base, robust revenue growth and government affiliations may make it an appealing choice for long-term investors.

“If you believe in the potential of AI and data analytics, Palantir could be a winning investment,” Carpenter says.

The Case for Selling PLTR in Early 2024

If you’re averse to PLTR’s price volatility or prefer lower-risk investments, Palantir’s fluctuating performance and high valuation could prompt investors to sell or at least reduce their PLTR position.

“Like with any stock, staying attuned to the market and aligning your investment decisions with your financial goals is crucial when considering selling PLTR shares,” Carpenter says.

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