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Palantir Technologies Inc. (PLTR) has been one of the standout stories in the stock market for 2024. With a staggering 338% surge in its share price year-to-date, the software and artificial intelligence (AI) powerhouse has cemented itself as one of the top-performing tech stocks of the year. However, as the stock continues to soar, the question looms: Is it too late to buy PLTR stock?
Recent developments have only added fuel to the bullish narrative. Notably, the company will be added to the Nasdaq-100 Index ($IUXX) next week, a move that will likely drive increased institutional ownership as funds tracking the index are forced to buy shares. At the same time, most analysts remain cautious, citing valuation concerns. Baird, for instance, recently initiated coverage with a “Hold” rating and a $70 price target, reflecting skepticism about the stock’s ability to sustain its meteoric rise. However, Palantir has consistently defied the skeptics.
In this article, we’ll take a closer look at the factors driving Palantir’s extraordinary performance, the concerns surrounding its valuation, and whether now is the right time to add the stock to your portfolio - or if it’s wiser to wait for a pullback.
About Palantir Technologies Stock
Palantir Technologies Inc. (PLTR) develops and deploys software platforms for the intelligence community, commercial enterprises, and government entities around the globe. It offers a range of platforms, such as Palantir Gotham, Foundry, Apollo, and the Artificial Intelligence Platform (AIP). The company’s market cap currently stands at $162.9 billion.
Shares of the analytics software provider have performed exceptionally well in 2024, delivering an outstanding 338.2% return year-to-date.
Palantir Stock Set to Join Nasdaq-100 Index
Nasdaq announced last Friday that Palantir would be added to the Nasdaq-100 Index ahead of the open on Monday, Dec. 23, replacing Super Micro Computer (SMCI). Notably, the Nasdaq-100, which includes the 100 largest non-financial companies in the Nasdaq Composite ($NASX), is reconstituted every December and rebalanced quarterly to adjust the weight of its constituents based on market capitalization.
The stock’s inclusion in the tech-heavy benchmark follows a more than fourfold increase in PLTR's value since the start of the year, fueled by rising demand for its AI offerings. The company’s shares became eligible for inclusion in the index following a strategic transfer of its stock listing from the New York Stock Exchange (NYSE) to the Nasdaq last month.
Membership in the Nasdaq-100 means that mutual funds, exchange-traded funds (ETFs), and other financial products tracking this index will be required to purchase shares of Palantir. So, all else being equal, this heightened demand is likely to exert some upward pressure on the stock price.
Palantir Initiated With “Neutral” View at Baird on Valuation Concerns
On Dec. 11, Baird initiated coverage of Palantir with a “Neutral” rating and a $70 price target. The firm expressed admiration for PLTR’s artificial intelligence-powered offerings and revenue growth but remains cautious about the stock’s rich valuation.
“Its AIP platform, launched in 2023, has catalyzed U.S. Commercial growth, which surged 54.3% YOY in Q3, accelerating total revenue growth to 30%,” Baird analyst William Power told investors in a research note. “PLTR has excelled at actually putting generative AI applications into production, which is where we expect most value to be extracted in the coming years.”
Baird highlighted that U.S. government agencies remain a strong base for Palantir. With the incoming Trump administration prioritizing government efficiency, the firm views PLTR as a potential “force multiplier” in that department.
Overall, Baird is optimistic about the company’s position but “wary of chasing” the shares, given their strong year-to-date performance and lofty valuation. However, it should be noted that analysts have consistently underestimated Palantir, cautioning about its high valuation, yet this has not stopped the stock from steadily climbing and reaching new all-time highs this year.
Palantir’s Revenue Continues To Accelerate
On Nov. 5, PLTR stock surged more than 23% after the company reported Q3 results and guidance that exceeded estimates across the board.
Palantir’s revenue grew 30% year-over-year to $725.5 million, beating both its own guidance and all analyst estimates. Q3 represented the sixth consecutive quarter of accelerating revenue growth, indicating steadily increasing demand for its products. It’s noteworthy that the company’s revenue growth accelerated by 3 percentage points in Q3 from 27% year-over-year growth in Q2, which itself was an increase from 21% year-over-year growth in Q1.
The acceleration in PLTR’s total revenue was primarily fueled by its government segment, which accounted for 56% of total revenue in Q3. Government revenue surged 33% year-over-year to $408.3 million, driven by growing demand from defense and intelligence agencies, significantly exceeding the 23% year-over-year growth seen in Q2. Solid growth in commercial revenue also cannot be overlooked. Its commercial revenue grew 27% year-over-year to $317.2 million. Notably, U.S. commercial revenue increased by 54% year-over-year to $179 million, indicating strong U.S. business interest in the company’s AI offerings. With that, the company shows accelerating growth across both segments, further solidifying its fundamental strength.
On the profitability front, it’s evident that despite accelerating growth, Palantir continues to deliver impressive margin expansion. Operating margins more than doubled to 15.6% from 7.2% last year, indicating that their business is scaling as expected. PLTR’s adjusted EPS grew 43% year-over-year to $0.10, beating expectations by $0.01.
From a cash flow standpoint, Palantir is performing well, showing a 216% year-over-year increase in third-quarter operating cash flow to $420 million. Also, the adjusted free cash flow (FCF) margin was 60%, marking the highest quarterly FCF margin the company has achieved to date.
Examining the balance sheet, Palantir ended the most recent quarter with $4.6 billion in cash, cash equivalents, and U.S. Treasury securities, and no debt, affording it considerable flexibility for future investments and acquisitions.
Looking ahead, Palantir boosted its full-year guidance for key metrics, reflecting management’s confidence in the company’s ability to maintain its strong momentum. Full-year revenue is projected to range between $2.805 billion and $2.809 billion, representing 26% year-over-year growth at the midpoint. Also, Palantir anticipates U.S. commercial revenue to exceed $687 million, corresponding to a minimum growth rate of 50%. In addition, the company forecasts an adjusted operating income of $1.054-$1.058 billion and expects adjusted free cash flow to surpass $1 billion.
Wall Street forecasts indicate that PLTR is expected to see a 25.51% year-over-year increase in revenue, hitting $2.79 billion in fiscal 2024, with adjusted EPS projected to grow 51.48% year-over-year to $0.38.
AIP Powers Palantir’s Unstoppable Growth
Palantir’s Artificial Intelligence Platform (AIP), introduced in mid-2023, has rapidly become a fundamental component of its growth strategy. Management states that AIP is highly effective in helping organizations efficiently implement AI-driven solutions at scale. For instance, during the Q3 earnings call, Palantir’s CRO and CLO, Ryan Taylor, highlighted that AIP assisted a leading global insurance organization in automating critical underwriting workflows, reducing the typical response time from over two weeks to just three hours.
According to analysts, the company’s revenue growth is accelerating due to the rapid adoption of AIP as increasing demand for the platform drives new customer conversions and existing deal expansions. This is also contributing to strong margins and robust cash flow. Notably, the company closed 104 deals in Q3, each worth over $1 million, driving a 33% year-over-year increase in total contract value (TCV) to $1.1 billion. Management reaffirmed its commitment to aggressively invest in AIP, a move that is expected to enhance the company’s value proposition and appeal to both current and potential customers.
“This is a U.S.-driven AI revolution that has taken full hold. The world will be divided between AI haves and have-nots. At Palantir, we plan to power the winners,” said Palantir CEO and co-founder Alex Karp.
Is PLTR’s Valuation Truly a Concern?
Palantir’s valuation has long been a topic of debate among investors and analysts. Undoubtedly, valuation poses the biggest risk for Palantir, as the stock trades at an unusually high earnings premium. PLTR’s forward non-GAAP price/earnings (P/E) multiple stands at 196.44x, significantly higher than the sector median of 25.94x and its five-year average of 120.96x. This trend is also evident in its forward EV/sales multiple, where it trades at an even steeper premium compared to the sector median.
Palantir’s strong fundamentals and significant industry tailwinds might justify its valuation for some investors. However, it should also be noted that the current valuation offers little margin for error, and any negative surprises, such as a slowdown in revenue growth, could severely impact the stock.
Options Market Sentiment on Palantir Stock
Looking at the January 17, 2025 option chain, the $75 CALL option features a bid/ask spread of $6.05/$6.25, and the $75 PUT option has a spread of $5.20/$5.30. Note that this option strike is closest to the current stock price. We can now determine the expected price movement by using the midpoint prices of these options:
5.25 (75.00 put) + 6.15 (75.00 call) = 11.40/74.39 = 15.3%
Employing the long straddle strategy and based on current prices, the options market indicates that PLTR stock could experience a movement of around 15.3% by the January options expiration from the $75.00 strike price. That would place the stock in a trading range of $63 to $85.77.
Notably, at the $75.00 strike price, the number of call options more than doubles put options, with 27,959 open calls versus 10,614 open puts. This reflects a bullish sentiment in the options market.
What Do Analysts Expect For PLTR Stock?
Analysts maintain a cautious stance on Palantir stock, as reflected in a consensus “Hold” rating. Again, this rating was assigned not due to the company’s fundamental struggles, but because of its lofty valuation. Out of the 16 analysts covering the stock, two analysts recommend a “Strong Buy,” seven give a “Hold” rating, two advise a “Moderate Sell,” and the remaining five give a “Strong Sell” rating. Unsurprisingly, the stock trades at a premium to its average target price of $40.14, and is now very near the Street-high price target of $75.00.
The Bottom Line on PLTR Stock
Palantir is an outstanding company, and its successive quarters of accelerating revenue growth provide investors ample reason to be excited about its future. With AI tailwinds expected to remain exceptionally strong, the company is well-positioned to deliver sustained long-term revenue growth and profitability expansion. However, I recommend waiting for a pullback before buying Palantir stock, primarily due to the risks associated with its lofty valuations at current levels.
