There’s been little in the way of news/announcements with Palantir Technologies (NYSE:PLTR) stock recently. As before, all eyes are on the AI software company’s upcoming earnings release, scheduled post-market Feb. 5. I can understand why PLTR stock owners may plan to take profits.
There are increasing concerns that AI stocks, even high-quality names like this one, are at risk of selling off, as the supposed “AI bubble” begins to burst. There are concerns that PLTR stock has moved up too far, too fast, and that a correction is due. Yet while there is a high level of uncertainty right now with this stock, don’t assume that means heading for the hills is the right move. Here’s why.
PLTR Stock and Earnings Uncertainty
Here’s the current situation with Palantir Technologies. As discussed previously, after surging by triple-digits during 2023, PLTR has been holding steady. The stock is at a crossroads. On one hand, next month’s earnings release could help bolster the bull case, even if the results themselves hardly knock it out of the park.
A fast re-acceleration growth back to 30% isn’t necessary to spark another PLTR stock rally. A modest revenue and earnings beat, coupled with upward revisions to guidance or more details about the rollout of Palantir’s Artificial Intelligence Platform may be enough to drive an after-earnings surge.
On the other hand, a revenue/earnings miss, or any walking back of guidance, could drive another round of weakness for the stock. If that’s not bad enough, overall market sentiment, as well as sentiment about AI stocks, may change between now and earnings day.
If the market becomes more cautious, and starts cycling back out of AI stocks or even just growth stocks it may not matter if the upcoming earnings release has more positive surprises than negative shockers. Investors could use any negative aspect of the release/guidance update as justification to bail.
Catalysts in Short and Long Term
Although it’s possible that PLTR stock encounters some weakness within the coming, that doesn’t mean you need to stay away. Even if the bears regain the upper hand, a possibly forthcoming bearish wave may prove fleeting. There are two near-term catalysts, each of which could help shares get back on an upward trajectory.
First, with commercial customer growth serving as a forward-looking indicator, it’s likely a matter of when, not if, the growth resurgence comes fully into swing. Palantir could be back to prior levels of growth within a few quarters. Second, there is the potential for PLTR to be added to the S&P 500 index. After reporting four consecutive quarters of positive GAAP earnings, this stock now qualifies to join.
As is common with stocks added to the widely-followed index, this event (if it happens) could also give shares a near-term boost. If that doesn’t sound promising enough, Palantir also has some strong long-term catalysts on its side.
The artificial intelligence secular growth trend leaves Palantir to continue experiencing steady growth with its commercial segment. Rising geopolitical tensions and the growing use of AI/machine learning in civilian applications also points to steady growth ahead for Palantir’s governmental business.
Bottom Line: Sit Tight
Yes, if you agree with me that Palantir has many positives on its side, you may still think that these positives are more than accounted for in PLTR’s valuation. After all, the stock today trades for a rich 67.8 times forward earnings.
However, I wouldn’t assume that future potential is fully priced-in. As a Seeking Alpha commentator recently pointed out, last quarter the company’s sales increased by around $100 million, yet cost of goods sold increased by only $300,000. This could suggest that a larger-than-average portion of top line growth will fall straight down to the bottom line.
All things considered, the best days for PLTR stock are still ahead of it, not behind it. As such, hold onto any existing positions, and seize any opportunity (i.e. any pullbacks) to add to/enter a position.
PLTR stock earns a B rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in PLTR. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
