Artificial intelligence (AI) is shaping up to be a big growth opportunity for Palantir Technologies (PLTR -3.77%). The data analysis company benefited from a surge in demand and its phone is ringing off the hook with calls from businesses eager to take advantage of AI.
That heightened interest is just the latest reason why investors should remain bullish on the company's growth prospects. Let me explain.
November is shaping up to be a busy month for Palantir
One of the best ways to win over customers is to show them the benefits of a new product or service. And that's what this company is doing with boot camps for its Palantir Artificial Intelligence Platform (AIP). These AIP boot camps aim to help customers and potential customers identify possible use cases for their businesses in five days or less. One of the designed outcomes is to also help train users for an initial rollout.
Palantir calls these boot camps "hand-on-keyboard sessions" that will help both existing and prospective customers work with its engineers to learn about AI and how it can be deployed at their companies. Palantir says it is on track to complete AI boot camps involving over 140 organizations by the end of November -- with half of them taking place this month.
These boot camps can result in many positives for the business
This is a big initiative for Palantir; management says in its previous pilot projects, the process could take as long as three months. By shortening its lead time, Palantir can be more efficient in its sales process and reach more customers. Plus, a quicker turnaround time potentially means faster sales growth. And with potential customers seeing the results and the impact of AI right in front of their eyes, it could also be easier for Palantir to close deals.
There is little reason to doubt that these boot camps will be successful. AIP appears to be a big hit already -- the number of AIP users nearly tripled last quarter. And in the five months since it launched the platform, it has attracted close to 300 organizations as users.
Palantir's top and bottom lines are on the right track
In the third quarter, the data analytics company reported revenue of $558.2 million, up 17% year over year. Impressively, Palantir achieved this while also reducing its overhead. Operating expenses declined by more than 5% to $410.3 million as the company reduced its general and administrative spending by over $20 million. Palantir's operating income totaled $40 million for the quarter, which was a sharp improvement from the $62.2 million loss it incurred a year ago.
Palantir's operating margin was 7% of revenue in the quarter. If it can maintain that kind of margin, then as the business generates more growth, a portion of its incremental revenue will flow through to the bottom line, bolstering its earnings. Currently, the stock trades at more than 280 times its trailing earnings. But that's due to the company's limited profitability. Now, with Palantir being profitable on a consistent basis and on the cusp of more growth thanks to AIP, its earnings multiple could come down significantly in the years ahead.
Should you buy Palantir's stock?
Palantir's valuation looks rich, but if it can capitalize on its AIP boot camps to grow its sales, this tech stock could soar. Year to date, its shares are already up over 200%, making Palantir one of the year's best-performing AI stocks. It is, however, still down by almost 50% from its early 2021 peak, and essentially flat compared to where it was at the start of 2022.
If you're a risk-averse investor, the safe approach would be to wait and see how this company does in the next few quarters before investing, to first see the degree to which the AI boot camps pay off, and to ensure that Palantir's bottom line is indeed growing. But if you're OK with the risk and uncertainty, now may be a good time to buy the stock, because if Palantir is able to maintain a healthy operating margin while also accelerating its sales growth, this could be a profitable stock to own for the foreseeable future.
