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Palantir Technologies (PLTR) has emerged as a significant player in the software and data analytics industry. Palantir stock has stood out this year, alongside top artificial intelligence (AI) companies such as Nvidia (NVDA). Thanks to a string of strong quarters and an increased emphasis on AI-driven solutions, PLTR stock has surged an eye-catching 324.7% year-to-date, far outpacing the S&P 500 Index's ($SPX) gain of 27.3%.
Founded in 2003, Palantir initially focused on government clients through its Gotham platform. To reduce reliance on government contracts, the company gradually expanded to include commercial clients through its Foundry platform, which was a wise decision. This fueled sales growth and rising profits, as reflected in its recent third-quarter results. It also recently joined the S&P 500 Index as a result of its consistent profits, all of which have contributed to the stock's momentum.
Now, PLTR stock will also be added to the Nasdaq-100 Index ($IUXX) before the market opens on Dec. 23, meaning more visibility for the company. Let’s find out if the stock is still a buy.
Palantir's Outstanding Financials
Palantir AIP, or Artificial Intelligence Platform, has made a name for itself by analyzing complex datasets for a wide range of government and commercial clients.
Palantir has strong ties to government agencies, particularly defense and intelligence. Contracts with organizations such as the United States Department of Defense and NATO allies provide a consistent revenue stream and a solid foundation for future growth. Furthermore, it has increased its global footprint by securing contracts with foreign governments.
In the third quarter, the company signed a $100 million five-year contract with the U.S. military to expand Maven Smart System AI/ML capabilities. It also collaborated with the Ukrainian government to use AI for humanitarian de-mining operations.
The government sector accounted for 56% of total revenue in the quarter, up 32.7% year on year to $408.3 million.
While government contracts remain a key revenue source, Palantir is aggressively expanding into the commercial sector. Companies in healthcare, energy, and finance are increasingly using Palantir's Foundry platform to optimize operations and improve efficiencies. Palantir has collaborated with Microsoft (MSFT), IBM (IBM), Oracle (ORCL), and PwC, among others, to broaden its customer base.
The commercial segment's revenue increased by 26.6% during the quarter. Management expects U.S. commercial revenue to increase by 50% in 2024.
Palantir also reported a record GAAP (generally accepted accounting principles) profit of $0.06 per share, implying a 100% year-over-year increase. It expects to report GAAP profits in the fourth quarter of 2024, driven by revenue growth of around 26%.
At the end of the third quarter, cash, cash equivalents, and short-term U.S. Treasury securities totaled $4.6 billion. Palantir also has a strong free cash flow (FCF) position, which allows it to invest in growth initiatives. The company generated $435 million in adjusted FCF in the third quarter, and expects to generate FCF of more than $1 billion in 2024.
Talking about the quarter, CEO Alex Karp stated, “The world will be divided between AI haves and have-nots. At Palantir, we plan to power the winners.”
Management expects 26% revenue growth for the full year, which is consistent with analysts’ estimates. Earnings are expected to rise 51.5% in 2024. In 2025, revenue and earnings are expected to increase by 24.3% and 25%, respectively. PLTR stock is currently trading at 160 times forward 2025 earnings, which is expensive.
A Great Year For Palantir
The company continues to receive good news. Palantir stock now has a market capitalization of $173.3 billion. Following an outstanding year of consistent revenue and earnings growth, Palantir is now part of the S&P 500 Index. Furthermore, Nasdaq-100 index membership means institutional investors will be compelled to buy shares. The Nasdaq-100 includes 100 of the largest non-financial companies listed on the exchange.
According to The Street, most top mutual funds seeking AI exposure have grown more interested in Palantir stock now that it has been added to the Nasdaq-100. Many believe that this will serve as a catalyst for the company's growth going forward.
Overall, Wall Street believes PLTR stock is a “Hold.” Out of the 16 analysts covering the stock, two have a “Strong Buy” recommendation, seven say it’s a “Hold,” two rate it a “Moderate Sell,” and five rate it a “Strong Sell.”
Owing to this year’s rally, PLTR stock has surpassed both its average target price of $39.64 and the high price estimate of $75.
Palantir’s platforms are deeply embedded into the operations of its clients, primarily government agencies. This creates high switching costs and ensures long-term customer retention.
While the company's future looks promising, its rapid growth in the commercial sector, international expansion, and ongoing improvement of its AI platforms will be critical to maintaining a competitive advantage.
Is PLTR Stock a Buy Now?
While some analysts are skeptical of PLTR stock's lofty valuation, investors' optimism about the company's long-term prospects is reflected in its stock performance this year.
Given Palantir's success and rising demand for its AI platform, as well as its expanding market share, I believe the company still has a long way to go. If Palantir can maintain its exceptional performance, it will almost certainly continue to attract investors.
