Palantir (NYSE:PLTR) has been on fire in the last year, and investors are wondering if this growth will continue. Demand for artificial intelligence is soaring, making a strong case for the company’s growth to continue moving forward.
They have been an early pioneer in AI, and their business has hit a major inflection point achieving GAAP profitability for four consecutive quarters. It is without a doubt that Palantir will be a winner in the AI race. Now is a great time to look at the company’s long-term outlook to determine if it deserves a spot in your portfolio.
Palantir Stock Analysis: A Lofty Valuation Means Volatility Ahead
It is without question that Palantir stock is expensive, therefore many investors are questioning its current valuation. Before the company turned profitable, retail investors and institutions were buying up the stock hand over fist during the Covid pandemic.
Things are obviously much different now, with the economy recovering from inflation and higher interest rates. Spending on enterprise software products is picking up with interest rate cuts on the horizon in 2024.
The S&P 500 closed out 2023 with a 24% gain, with Palantir rising more than 160%. Palantir has a forward PE of 55.5, and a PS ratio of 17. By no means is this stock cheap at the current valuation. However, it will become cheaper with revenue, gross margin expansion and profitability increasing over the next few years.
Analysts are guiding 20% revenue growth in FY24. While growth may be priced in right now, long-term investors will be keen to capitalize on dip buying opportunities.
S&P 500 Inclusion is Near in 2024
The S&P 500 Index is one of the world’s most prominent stock market indexes.
Palantir is inching closer and closer to becoming a part of it later this year. This will be a defining moment for the company; increased visibility and investment is great news for shareholders.
In Q2 2023, Palantir’s CEO Alex Karp hinted at the company being included, as they would achieve GAAP profitability in the 2023 fiscal year. This is a huge milestone for the company and the long-term outlook looks very promising.
Normally when a company joins the S&P 500, funds are forced to buy up shares, which drives up the share price. With the company’s AI story only just beginning, investors might consider keeping Palantir on their radar.
Long Term Holders Will Be Rewarded Handsomely
Palantir has been at the forefront of artificial intelligence since its inception. The company primarily developed advanced AI/ML models for U.S. government agencies.
Their Gotham platform is used for counterterrorism in the United States Intelligence Agency (USIC) and the United States Department of Defense. They also operate three other platforms, including Foundry, Gotham and AIP.
AIP is set to be a game changer for Palantir. The platform allows enterprises to leverage machine learning and large language models to drive business operations decisions. Their AIP bootcamps sets them apart, allowing small- to medium-sized and even large enterprises to go from zero to launch in days.
AI can be extremely convoluted, therefore platforms must be easy to both use and launch. Palantir investors are often worried about the company’s reliance on government contracts.
However, that is slowly changing as commercial revenue grew at nearly double the pace of government revenue in Q3 2023. With Palantir’s valuation still being rich, investors should hold the stock or wait to buy on dips in 2024.
On the date of publication, Terel Miles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
