Predicting Palantir's Stock Position in the Next 12 Months
A bunch of companies haven't responded to Trump's presidential election win as intensely as Palantir Technologies (PLTR, up 3.92%), a data analytics and AI firm with a significant focus on defense and law enforcement. The company has experienced an impressive surge, adding billions to its market value with shares skyrocketing by 50% since the election.
But is Palantir's recent surge driven by hype or solid economic growth? Let's delve deeper into what the next year might have in store for this innovative tech leader.
Swift transition to AI
Established in 2003, Palantir is arguably one of the initial AI companies. Its cloud-based platforms are designed to extract insights from massive data sets, helping organizations identify patterns, improve efficiency, and drive growth. The implementation of advanced language modeling technologies, similar to those behind AI models like ChatGPT, allows it to process tasks more efficiently and provide real-time insights.
This is a highly competitive field, with tech giants such as Microsoft, Snowflake, and Amazon offering comparable services. However, Palantir distinguishes itself by offering tailored solutions that emphasize security.
The company offers its services through three primary platforms: Gotham, Foundry, and the Artificial Intelligence Platform (AIP). Gotham assists government clients in decision-making, intelligence gathering, and military targeting. Foundry optimizes business processes and identifies trends for corporate clients, while Palantir's AIP helps all types of organizations build and deploy AI applications.
The Trump influence
If stock price fluctuations are an indicator, Trump's election victory has bolstered investor confidence in Palantir. While market movements don't always have a clear reason behind them, this trend may be linked to Palantir's role in the previous Trump administration, where it supported Immigration and Customs Enforcement (ICE) by tracking and deporting undocumented immigrants.
The customized data analytics solution called Falcon (developed by Palantir for ICE) uses data from government surveillance networks and public records to assist law enforcement agents in planning future raids and operations. Despite negative publicity and criticism from activists, Palantir maintained its contract, positioning itself for potential future controversial deals.
However, the Falcon contract only generated $127 million between 2013 and 2022, which isn't a major revenue contributor for Palantir. Moreover, Business Insider reports that the company may lose the contract as ICE transitions to other providers. It's wise for investors to evaluate Palantir's overall financial health rather than pin their hopes on this uncertain income stream.
Considering the fundamentals
In the third quarter, Palantir's revenue increased by 44% year-over-year to $499 million. While government clients account for 64% of sales, the commercial business is growing rapidly -- soaring by 54% to $179 million in the reported period. It appears that corporate clients remain unbothered by Palantir's controversial government work. And it manages to thrive in highly competitive AI and data analytics markets.
That said, a great company isn't an automatic investment if its valuation exceeds its fundamental worth. And with a forward P/E ratio of 143 at the time of writing, Palantir's stock is regarded as overpriced, even considering its strong growth rate.
For comparison, the S&P 500 has a forward P/E estimated at around 25. AI industry leader Nvidia has a lower forward P/E of 36, despite posting a substantially faster top-line growth rate of 122% in the third quarter. Considering this, Palantir seems poised for a significant price adjustment over the next 12 months. Investors should approach this opportunity with caution.
Based on the text, here are two sentences that contain the words 'money', 'investing', and 'finance':
- Many investors are considering investing in Palantir Technologies due to its impressive surge and potential for future growth in the data analytics and AI field.
- Despite Palantir's high forward P/E ratio of 143, some investors are still willing to put money into the company, seeing it as a promising finance opportunity with its strong growth rate.
