Timing the market is a futile endeavor, but I’d wager plenty of investors are wishing they did just that with Palantir Technologies (NYSE:PLTR) stock earlier this year.
It’s an understatement to say that the emergence of artificial intelligence as a “hot” investing theme has benefited PLTR stock.
Speculation about the rising adoption of AI and machine learning applications has enabled shares in this AI/machine learning software dynamo to experience a stunning rebound thus far in 2023.
Yet while you may regret not grabbing PLTR before “AI Mania” spiked it to higher prices, don’t let fear of missing out (or FOMO) lead you to think buying this stock at any price is a worthwhile move.
Yes, these aforementioned trends may ultimately result in materially higher revenue and earnings for this company. However, there’s no need to chase it. A more ideal entry point could soon emerge.
PLTR Stock Is Flying High, but for How Long?
Palantir stock is currently holding steady, changing hands at just over $15 per share. The question now is whether the stock can hold on to and add to these gains.
There is an upcoming event that may enable PLTR stock to hit even higher price levels in the near-term. That would be the company’s next earnings release, scheduled for Aug. 8.
Considering Palantir’s strong results last quarter, sell-side analysts have raised their forecasts for the current quarter (ending June 30, 2023).
This may make it difficult for Palantir to again exceed expectations. Yet if the company provides further sign that it is capitalizing on AI/machine learning trends (especially in commercial sales rather than governmental contract wins), shares may be in for another post-earnings spike.
You may not want to be too hasty entering a position. We can speculate whether macro issues will wreak havoc on growth stocks in the near-term,but that’s not the only issue. The inevitable petering out of today’s “mania” also has to be considered.
The Silver Lining if the ‘AI Bubble’ Deflates
Like all speculative waves, the off-the-charts excitement for all things AI will peak, followed up quickly by either a slow or rapid decline. If this happens, you can expect any stocks boosted by this trend to experience some deflation in price, and PLTR stock is no exception.
However, don’t get me wrong. Even if the “AI bubble” pops/deflates, that doesn’t mean the underlying trend has screeched to a halt. The internet didn’t fade in popularity just because the “Dotcom bubble” popped in 2000. The pivot towards electric vehicles isn’t slowing down, even as it’s been nearly two years since the “EV bubble” peaked.
The same applies here with AI. Investors could soon realize they went overboard with their “mania,” and stocks in this space could correct accordingly. In the case of PLTR, this could perhaps mean a move back towards its lows (high single-digits). Yet if this happens, it’s not as if the stock will remain stuck at rock-bottom price levels.
In the years ahead, as the dust settles on the “post-bubble” pullback, Palantir shares could rise significantly in value, as commercial adoption of this technology takes off, resulting in a material “take off” in Palantir’s operating performance.
The Takeaway for Value-Conscious Investors
Previously, I argued that investors bullish on AI should buy PLTR on the next big plunge. I reiterate that view, with a more detailed takeaway tailored for value-conscious investors.
Given PLTR’s rich valuation (72 times forward earnings), it would take a very high double-digit price decline for the stock to trade at a low valuation (under 15 times earnings).
I wouldn’t count on this happening, even if there’s a severe post-bubble deflating with AI stocks.
Still, I wouldn’t pass up on Palantir if its valuation falls down to “fair price” rather than “deep value” levels. Buying in at 25, 30, even 40 times earnings could prove worthwhile.
With the “winner take all” dynamics possibly at play with AI early-movers, a near-term hangover following today’s “AI mania” could open the door to long-term profits with PLTR stock.
PLTR stock earns a B rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
