The AI Software Specialist That’s Defying Gravity
Palantir Technologies, a leading artificial intelligence (AI) software specialist, has seen its stock soar by a staggering 372% in 2024. While this meteoric rise has made the stock expensive, there are compelling reasons to believe that Palantir’s growth story is far from over.
A Rich Valuation, But Worth It?
With a price-to-earnings ratio of 399 and a sales multiple of 72, Palantir’s valuation multiples are significantly higher than the tech-laden Nasdaq-100 index, which trades at 32 times earnings. However, the company’s accelerating growth, driven by its fast-growing Artificial Intelligence Platform (AIP), suggests that investors may be willing to pay a premium for this high-flying stock.
AIP: The Crown Jewel
Palantir’s AIP, which allows governments and organizations to integrate generative AI into their operations, has been ranked as the top AI/ML platform by market research firm Forrester, ahead of established names like Microsoft, IBM, and others. This platform has also received top ratings from Dresner Advisory Services and IDC, solidifying Palantir’s position as a leader in the AI software platforms market.
Commercial Customer Base Takes Off
In recent quarters, Palantir’s commercial customer base has seen rapid growth, driven by the adoption of its AIP. The company’s commercial revenue jumped 34% to $645 million in 2021, and its commercial customer count surged 51% year over year to 498 in the third quarter of 2024. This growth is expected to continue, with Palantir forecasting at least 50% growth in its U.S. commercial business for 2024.
Favorable Unit Economics
Palantir’s ability to land new customers and expand its business with existing ones has led to faster growth in its bottom line. The company’s adjusted earnings increased 43% year over year to $0.10 per share in the third quarter of 2024, driven by its land-and-expand strategy. This trend is likely to continue, given the secular growth of the AI software platforms market and Palantir’s superior AIP offering.
Margin Profile Improves
Palantir’s margin profile has also seen significant improvement, with an adjusted operating margin of 38% in the third quarter of 2024, up from 29% in the year-ago period. As the company continues to add new commercial customers, its margin profile is likely to improve further, powering its earnings growth.
A Multibillion-Dollar Opportunity
The AI software platforms market is expected to hit $153 billion in 2028, according to IDC. With Palantir’s robust position in this market and its efforts to make the most of this opportunity, the company is well-positioned to remain a top AI stock in the long run. Despite its rich valuation, Palantir’s growth story and favorable unit economics make it an attractive option for investors looking to add a growth stock to their portfolios.
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