As we move into the second half of 2024, the hype surrounding artificial intelligence (AI) shows no signs of fading. In fact, Bank of America (BAC) points out that this is only the beginning stages of AI adoption. That said, with investors laser-focused on companies leading the charge in AI, Palantir Technologies Inc. (PLTR) stands out as a prominent contender well-poised to benefit from this trend.
With the launch of its Artificial Intelligence Platform (AIP) last year, and the company sparking widespread engagement through its innovative “boot camps,” and securing a groundbreaking $178.4 million contract from the U.S. Army earlier this year for the TITAN ground station system, Palantir has been making major moves to build its AI success story - even as the stock remains generally out of favor with analysts.
The company is well-known for its pivotal role in the government sector, and it’s making impressive strides in the commercial space, too. But as Wall Street shows signs of slowly warming up to the shares, it’s worth asking: Is Palantir the best AI stock to buy for the second half of 2024? Let’s take a closer look to find out.
About Palantir Stock
Since its foundation in 2003, Colorado-based Palantir Technologies Inc. (PLTR) has specialized in building powerful software platforms tailored for intelligence analysis and operational planning. Trusted across defense, law enforcement, and commercial enterprises, the company’s platform drives data-driven insights essential for effective counterterrorism and strategic decision-making.
Valued at a market cap of around $63.3 billion, PLTR stock hit a fresh 52-week high of $28.38 to start this week. That caps off a rally of 74.4% over the past year, easily crushing the broader S&P 500 Index’s ($SPX) gain of 27.7% during the same time frame. On a YTD basis, the stock is up 65.5%.
From a valuation perspective, the stock trades at 168.68 times forward earnings. Even with above-average earnings growth projected over the next three to five years, this valuation looks quite expensive - a factor that has contributed to some analysts’ ongoing skepticism around PLTR.
Palantir Slides After Q1 Earnings
Following the announcement of its Q1 earnings results on May 6, Palantir's shares plunged 15.1% in the subsequent trading session. Revenue surged 21% year-over-year to $634.3 million, beating estimates by 2.7%, while its adjusted EPS of $0.08 aligned perfectly with Wall Street's forecast. During the quarter, Palantir achieved its sixth consecutive quarter of GAAP profitability, marking a significant milestone for the company.
In addition, the company showcased robust growth in its U.S. commercial business. Commercial revenue surged 40% year-over-year to $150 million, with customer count soaring 69% annually to 262. The company expects its U.S. commercial business, which accounted for nearly 24% of revenue in Q1, to remain a significant growth driver in the near term. On the government side, revenue rose 16% annually to $335 million, driven by a 12% increase in U.S. government revenue to $257 million.
In a letter addressed to shareholders, CEO Alex Karp pointed out, “In the three months ending March 31, 2024, we earned $106 million, the largest quarterly profit in our company’s twenty-year history. For comparison, we now earn more profit in a single quarter than the amount of revenue we generated in an entire year a little more than a decade ago.”
However, the company’s weaker-than-expected guidance triggered PLTR’s post-earnings sell-off. For Q2, management expects revenue to range between $649 million and $653 million, compared to the consensus estimate of $653 million. Looking forward to fiscal 2024, the company anticipates revenue to land between $2.68 billion and $2.69 billion, weaker than the consensus estimate of $2.71 billion.
Analysts tracking Palantir project the company’s profit to climb 100% year over year to $0.16 per share in fiscal 2024, and jump another 37.5% to $0.22 per share in fiscal 2025.
What Do Analysts Expect For Palantir Technologies Stock?
BofA analyst Mariana Perez Mora recently highlighted that Palantir is well-positioned for growth, particularly in defense AI integration and commercial AI applications. On the government side, Mora predicts 2024 will be hailed as the breakthrough year for defense AI integration, with the Department of Defense (DoD) “shifted towards software and rapid tech modernization.”
On the commercial front, while the impact of Palantir’s AIP boot camps has yet to fully translate into sales, the momentum is building. Given the typical sales cycles of six to nine months, Mora expects to see more meaningful conversion rates as these boot camps mature.
Supported by these factors, the BofA analyst rates PLTR stock as “Buy” with a price target of $28.
Likewise, last month, Argus initiated coverage on Palantir with a "Buy" rating and a $29 price target. Analyst Joseph Bonner highlighted Palantir's diversifying revenue base and AI investments as the catalyst behind the bullish initiation.
Overall, PLTR stock still has a consensus “Hold” rating, but the mood on Wall Street is getting a little friendlier. Of the 15 analysts covering the stock, three recommend a “Strong Buy,” and one suggests a “Moderate Buy,” slightly higher than the two “Strong Buys” and one “Moderate Buy” of a month ago.
Rounding out the ratings, five more call PLTR a “Hold,” one advises a “Moderate Sell,” and the remaining five back a “Strong Sell” rating.
The stock trades at a premium to its average price target of $21.47, but the Street-high price target of $35, from Dan Ives of Wedbush, suggests that Palantir could rally as much as 23% from current levels.
On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
