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Tech stocks have embarked on a solid rally this year, driven by high hopes for continued artificial intelligence (AI) adoption, as well as expectations for a more favorable interest rate environment going into 2024. But while some tech names have stumbled this earnings season, shares of Palantir Technologies (PLTR) are up 35% just for the month of November - and the stock has surged a staggering 211% in 2023.
Now valued at a market cap of $43.01 billion, let’s see if Palantir stock is still a good buy right now.
An Overview of Palantir
Palantir Technologies builds and deploys software platforms for the intelligence community in the U.S. Its portfolio of tools and solutions are used to assist in counter-terrorism operations and investigations.
The commercially available Palantir Gotham software platform helps users identify patterns hidden within datasets, and could range from signal intelligence sources to reports from confidential informants. It helps operators plan and execute real-world responses to threats identified within the platform. The company also offers Palantir Foundry, which disrupts the way in which organizations operate as it creates a central operating system for data collection and analysis.
According to Palantir, the deployments of large language models (LLMs) have provided global users with the first form of AI tools that can be used to transform enterprise software. Palantir claims it began building the foundational architecture for AI years ago, and it can leverage that expertise to use the new technologies within its privately held datasets.
Palantir’s exposure to AI drove shares significantly higher in the first six months of 2023, and its recent gains were due to stellar Q3 results.
Palantir Crushes Estimates in Q3
Palantir reported revenue of $558.2 million in Q3 of 2023, an increase of 17% year over year. Its GAAP earnings stood at $0.03 per share, while adjusted earnings were higher at $0.07 per share. Both its revenue and earnings beat Wall Street estimates - and the company's fourth consecutive quarter of GAAP profits made it eligible for inclusion in the S&P 500 Index ($SPX), which further fueled investor optimism.
Looking ahead, Palantir also forecast Q4 sales between $599 million and $603 million, compared to estimates of $599 million.
Palantir’s U.S. commercial business was a key driver of sales in Q3. The business segment ended Q3 with revenue of $133 million, up 33% year over year as international customers grew by 23%. Comparatively, the legacy government business increased sales by 12% to $308 million.
What Is the Target Price for PLTR?
Palantir’s sharp rally means the stock currently trades at a hefty premium. Analysts expect its sales to rise by 19.8% to $2.66 billion in 2024, and earnings are forecast to grow by 16% to $0.29 per share. So, PLTR is priced at 16.4x forward sales and 68 times forward earnings, which is very steep - even for a high-flying growth stock.
Out of the 14 analysts covering Palantir stock, two recommend “strong buy,” one recommends “moderate buy,” five recommend “hold,” one recommends “moderate sell,” and five recommend “strong sell.” The average target price for PLTR is $14.65, indicating expected downside potential of over 26% from current levels.
