Shares of artificial intelligence and big data software platform Palantir (PLTR 0.36%) rose this week, appreciating 25.1% through Friday trading at 2:27 p.m. ET, according to data from S&P Global Market Intelligence.
The company reported earnings on Thursday, which beat expectations, while the company's guidance also outperformed expectations as well.
As we've seen this earnings season, forward guidance can make or break stocks. And as Palantir was founded as a counterterrorism technology platform that still gets a majority of revenue from government and military contracts, investors may be anticipating more demand following the tragic recent events in the Middle East last month.
NASDAQ: PLTR
Key Data Points
A solid beat and raise from this software star
In the third quarter, Palantir grew revenue 17% year over year to $558.2 million, with generally accepted accounting principles (GAAP) net profits of $0.03 per share. Both figures beat expectations. Meanwhile, management gave fourth-quarter revenue guidance between $599 million and $603 million, with the midpoint exceeding analyst expectations for just over $599 million.
The quarter marked the fourth straight quarter of GAAP net income, which management was quick to highlight. Of course, the company's huge cash hoard of nearly $3.3 billion has enabled the software giant to earn a huge amount of interest income. Yet in contrast to prior recent quarters, Palantir's operating income -- without counting the interest income -- was also positive, at around $40 million.
In his letter to shareholders, CEO Alex Karp also noted that the four quarters of profitability makes Palantir eligible to be included in the S&P 500 index.
Karp also went on to tout the reacceleration of the company's U.S. commercial business, which generated $133 million in the quarter and grew 33%. Overall, the commercial business, including international customers, grew 23%. The company's older government business was $308 million, up 12% in the quarter, and still made up a majority of revenue -- at least for now.
But Karp sees U.S. commercial companies as a big opportunity, especially in adopting Palantir's new Artificial Intelligence Platform, released nine months ago, and which combines Palantir's governance and security software with new large language model capabilities that have been unveiled over the past year by companies such as OpenAI and others.
Is Palantir too expensive?
Palantir's stock garners strong feelings among investors, on both the bullish and bearish side. After its earnings release, the stock now trades at 18 times sales, which is very high for a company only growing 17%.
At the same time, Palantir's cash comprises about 8% of its market cap, so the stock is a tad cheaper than its headline market cap. In addition, the flipping from losses a year ago to profits this year, with increasing employee efficiency and moderating stock-based competition, is encouraging to see.
So Palantir has definitely impressed this year, especially from a profitability and efficiency perspective -- but it appears to be getting fair credit from the market on that front as well. It's neither a bargain buy nor a strong sell.
