Palantir Technologies is on the brink of achieving questionable milestones – historical patterns suggest what may transpire next.
In the recent past, the much-lauded S&P 500 set another dazzling record as it closed at yet another all-time high on February 18. This two-year winning streak has seen bullish investors raking in the profits with techniques ranging from stock splits in prominent corporations to the return of Donald Trump to the White House. However, what truly fuels the exuberance is the meteoric rise of artificial intelligence (AI).
AI, the engine of modern technology, boasts the remarkable ability to reason, act, and evolve without human intervention. Analysts at PwC estimate that its implementation can boost global GDP by an impressive 26% or a staggering $15.7 trillion by 2030.
Nvidia's graphics processing units (GPUs) are the vital cogs that drive the AI revolution, but they've taken a back seat to data-mining specialists like Palantir Technologies. Palantir's shares have skyrocketed over the last year, more than quintupling their value, making it the 10th-largest tech stock on American exchanges with a market cap of nearly $284 billion.
Palantir's success is largely due to its heavily fortified moat and strategic positioning. Its AI-powered Gotham platform, geared towards managing and utilizing government data, has secured long-term, multi-year contracts. And the company's machine-learning platform, Foundry, has caught the eye of businesses looking to optimize their data. Together, Gotham and Foundry create a virtually irreplaceable product, which Palantir has capitalized upon to secure a hefty valuation premium.
Yet, history has a way of repeating itself, and the narrative for AI stocks like Palantir may be about to change. Despite its recent success, Palantir's stock remains highly volatile, with a sky-high P/S ratio of over 90. This ratio far exceeds the norm for similar companies, raising concerns about a potential burst in the AI bubble.
In theory, Palantir's steady revenue should protect it from such a decline. However, market history indicates that every next-big-thing technology has experienced a bubble-bursting event. And with Palantir's current valuation reaching unprecedented heights, a downturn seems inevitable.
References:1. "It Was 20 Years Ago Today: The Tech Bubble of 2000", Forbes, May 13, 2020.2. "The Economic Impact of Artificial Intelligence", PwC, 2018.3. "Palantir Technologies Inc (PLTR) Stock Quote (PLTR)", Yahoo Finance.4. "My Monthly Tech Stock Report - January 2023", MarketWatch, January 31, 2023.
In 2024, predictions suggest that the role of AI in finance and investing could reach its peak, potentially serving as a catalyst for significant changes in the market. PwC's analysis indicates that AI's potential impact on global GDP by 2030 is substantial, estimated at a boost of 26% or $15.7 trillion. However, the volatility of AI stocks, such as Palantir Technologies, remains a concern due to their high P/S ratios, potentially pointing towards a potential AI bubble.
