Is Palantir Stock a Buy?

Like many tech stocks last year, data analytics firm Palantir Technologies (PLTR 1.96%) saw its share price plunge amid macroeconomic conditions particularly painful to the tech sector, such as rising interest rates. Palantir stock plummeted to a 52-week low of $5.92 in December.

But with inflation cooling off this year, tech stocks are enjoying a resurgence, Palantir among them. Adding to this are the company's own successes, such as finally achieving profitability after years of net losses.

These factors propelled Palantir shares north of $16. So is it too late to buy Palantir stock? A look at how the company's currently doing can help to answer that question.

Palantir's performance

What a difference a year makes. In the first quarter of 2022, Palantir sustained a net loss of $101.4 million. In Q1 of this year, the company delivered net income of $19.2 million.

Palantir achieved profitability for the first time in the fourth quarter of 2022, so it's reassuring to see it deliver consecutive profitable quarters. In fact, Palantir expects to maintain profitability throughout 2023.

Rising revenue contributed to Palantir's profitable Q1. The company hit $525.2 million in sales, which represented 18% year-over-year growth.

The first quarter of 2023 was the latest in a string of quarters in which Palantir delivered double-digit revenue growth despite 2022's macroeconomic headwinds.

Data source: Palantir. YOY = year-over-year.

The role of AI in Palantir's success

Palantir's recent success looks likely to continue thanks to the introduction of the company's artificial intelligence platform (AIP), announced on April 27. AIP is just starting to roll out to customers, yet CEO Alex Karp described the demand for it as "nothing I've ever seen in 20 years of being involved in Palantir."

Customer hunger for AI in the data analytics field is understandable. Artificial intelligence is necessary to sift through and make sense of the massive amount of digital data we produce today. Over 200 million emails alone are sent every minute.

So much digital data is generated now, it's measured in zettabytes, where one zettabyte is equal to a trillion gigabytes. The secular trend of AI is so important in the context of the zettabyte era that the AI market is forecasted to expand from $142.3 billion in 2022 to $1.8 trillion by 2030, providing a multiyear tailwind for Palantir.

While other companies also possess AI capabilities, Palantir's competitive advantage stems from the fact its systems were built to handle classified government intelligence data. For instance, Palantir provided the U.S. Army with analysis used in the Army's battlefield intelligence system.

This high standard makes Palantir's platform attractive to businesses, as exemplified by its customer growth. Palantir had 391 customers at the end of Q1, up from 277 the year prior.

Palantir's other strengths

Palantir expects sales growth to continue. For the second quarter, the company forecasts revenue of at least $528 million compared to the prior year's $473 million, representing another quarter of double-digit growth. For the full year, Palantir anticipates revenue of $2.2 billion, up 16% over 2022's $1.9 billion.

Adding to its revenue growth is Palantir's impressive balance sheet. The company exited Q1 with total assets of $3.7 billion, easily overshadowing its total liabilities of $879.9 million. It also held a whopping $2.9 billion in cash, cash equivalents, and marketable securities, and no debt.

The company's financial strength doesn't end there. It generated adjusted free cash flow (FCF) of $188.9 million in Q1, a substantial jump from the prior year's $29.8 million, and the strongest FCF result in the company's history.

Palantir is firing on all cylinders right now, introducing the possibility the company could beat its Q2 revenue estimate when it announces earnings on Aug. 7. Palantir did so in Q1, blowing past its revenue forecast of $507 million on the high end to deliver $525.2 million.

With compelling AI capabilities, strong revenue growth, a stockpile of cash, and excellent FCF, there's a lot to like about Palantir right now. These factors contribute to making the company a solid long-term investment.