Palantir’s Potential: A High-Risk, High-Reward Play on the AI Boom


  • Palantir Technologies (PLTR) may be the “best pure-play” in AI but there are both growth ramps and speed bums for the big data company.
  • Pursuing government contracts and private sector clients makes the analytics stock prime for expansion.
  • Yet, this industry is in its early stages and must prove that the benefits outweigh the displacement it causes.
PLTR stock - Palantir’s Potential: A High-Risk, High-Reward Play on the AI Boom

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Palantir Technologies (NASDAQ:PLTR) stock was called the “best pure-play AI name” by Wedbush analyst Dan Ives.

If you didn’t own PLTR stock last year, you missed out on a 167% gain by the big data firm. Now its shares aren’t soaring this year like Nvidia’s (NASDAQ: NVDA), rising only 3% over the first three weeks. Does that mean Planatir’s run-up is over or is there more room to run? Let’s dive in and see if you missed out or just missed the initial phase of a rocket ride higher.

A Two-Pronged Approach

Palantir Technologies has strong competitive advantages over the competition in the government sector. That’s where it got its start crunching the numbers for the spooks at America’s spy agencies, including the CIA, NSA, the FBI, and the military.

It has long-term contracts with those agencies who use its software to combat terrorism, cybersecurity, and intelligence threats. The government represents 55% of Palantir’s revenue.

Yet Palantir recognized the real growth market was in the commercial segment. Its Foundry platform helps businesses with data integration, analysis, and decision-making.

It boasts a diverse cross-section of enterprise clients with corporations such as BP (NYSE:BP), Airbus (OTCMKTS:EADSY), and 3M (NYSE:MMM). It now has 181 enterprise customers with segment revenue rising 23% in its fiscal third quarter. 

Its new Artificial Intelligence Platform (AIP) allows them to combine their data with logic to take action. AIP users tripled over the last three months and since it launched the platform six months ago the number of organizations using AIP stands at almost 300.

Palantir has now been profitable for four consecutive quarters on a GAAP basis on the increased demand for data and AI solutions. That’s not going to stop as AIP will also see the number of clients using it grow exponentially. Wider profits and margins will follow in their wake.

What’s Next for PLTR Stock?

Of course, Palantir Technologies has a few risks and challenges to face. Revenue growth has decelerated over the past few years, though no one expected it to maintain the torrid pace it was on.

It also has to be mindful of the vagaries of relying upon government contracts. It’s why it was smart to expand into and widen its usefulness to the private sector.

Although there is still enormous excitement about the potential for AI, there remains hesitancy too. We’re still in the top of the first inning with AI and it is too early to accurately forecast where it will go in the future.

For example, there is the potential tumult it creates in the labor market as people lose their jobs to AI. Will companies lose any AI-generated savings to worker retraining? Will the purported benefits AI delivers actually materialize? Companies are seeing some results now but they still need it to flow to the bottom line. 

Last, PLTR stock is not cheap. It trades at over 200 times earnings, though that’s not uncommon with newly profitable stocks. Yet it also goes for 18 times sales, which puts it amongst the loftiest in its industry.

Because Palantir is only just turning profitable, its business has plenty of time to grow into its valuation. There may be some hiccups in AI’s usefulness but they won’t materialize just yet. PLTR stock is definitely sitting in the nosebleed seats but it is worth the price of admission for the long-term potential it holds.

On the date of publication, Rich Duprey held a LONG position in MMM stock. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.

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