Can the Purchase of Palantir Shares in 2025 Still Be Justified?
Riding the AI wave, Palantir (PLTR) shares have been a rollercoaster ride for investors. after its 2021 public debut, the stock plummeted 80% during the 2022 bear market, only to rebound with a vengeance, surging over 500% in the past three years. So, is it still worth jumping on the Palantir bandwagon in 2025, or have you missed the party?
Unlocking Secrets with AI
Palantir's software leverages AI and other analytical tools to help large organizations gain insights from their data. Its customized solutions cater to unique organizational needs, as evidenced by its contracts with government agencies like the U.S. military and the CIA. In fact, U.S. government revenue boasted an impressive $320 million last quarter, growing 40% year-over-year.
This growth doesn't seem like it'll slow down anytime soon, as Palantir signs large federal contracts, like the recent $618 million deal with the U.S. Army for up to four years. With a sprawling network of data sources and a need for organization, the U.S. government is more than willing to pay top dollar for Palantir's data management and analysis services.
But Palantir isn't stopping there. It's broadening its reach by selling its AI tools to big businesses. Leveraging its strong reputation in the government sector, Palantir has successfully secured deals with large-scale companies, with U.S. commercial revenue skyrocketing 54% year-over-year last quarter.
Growth Prospects and Profitability
With only $200 million in quarterly revenue from the U.S. commercial segment, Palantir has a significant growth potential in this market. Last quarter alone, Palantir closed 104 deals worth more than $1 million and added 39% more customers. As customers continue to invest in software and analytical tools, Palantir can expect its customer base to grow, benefiting its overall revenue.
When it comes to profitability, Palantir has some room for improvement. Its operating margin currently hovers around 13%, but with a gross margin consistently above 75%, the company has the opportunity to climb past 20% and potentially even 30% within the next five years. This profit margin expansion will significantly boost Palantir's bottom-line earnings as the business matures.
Time to Join the Party or Watch from the Sidelines?
Thanks to its recent success, Palantir now boasts a market cap of $180 billion, making it one of the world's 100 largest companies. Its stock's price-to-sales ratio has also soared to 72, putting it among the most expensive stocks in the S&P 500. This expensive valuation has led some to question whether it's too late to invest in Palantir.
While future growth is undoubtedly promising, Palantir's high valuation leaves little room for error. Even if the company manages to grow its revenue 40% annually over the next five years and boost its net income margin to 30%, its forward price-to-earnings ratio would still be 40. The hype surrounding Palantir is intense, and investors should tread carefully, at least until the price adjusts to more reasonable expectations.
In light of Palantir's growth in the commercial sector, some investors might consider investing in the company's shares, as U.S. commercial revenue surged 54% year-over-year. However, with Palantir's stock having a significant price-to-sales ratio of 72 and a high market cap of $180 billion, it's crucial for investors to carefully consider whether the current valuation accurately reflects the company's potential future earnings.
Given Palantir's impressive financial performance and expanding reach, some individuals might consider allocating a portion of their finance portfolio to this tech company. Yet, it's imperative to conduct thorough research and analysis before making any investing decisions, considering the already elevated stock prices of this AI-focused finance entity.
