Claiming the title of the top artificial intelligence (AI) stock for an entire year is no easy feat. In 2023, I think the best AI stock was Nvidia, but i think it will be hard-pressed to defend its title in 2024.
That leads me to look at other top AI stocks, like Palantir (PLTR 1.24%). Palantir is a popular AI stock, but could it be the best to own in 2024?
Palantir has multiple AI products for a diverse customer base
Palantir also had a strong 2023, as its stock has nearly tripled. But Palantir is just getting started as it slowly expands its product reach.
Palantir started as a company primarily focused on government contracts. Its AI platform excels at taking data in and then providing actionable insights to ensure users have the best information possible at a moment's notice. This is incredibly useful for combat commanders or tracking down cybercriminals. But it also has a strong use case in the civilian world, such as analyzing supply chains or preventing money laundering in banks.
Its product line also received many accolades, including being named a leader by Forrester Research for artificial intelligence and machine learning platforms, claiming the title for the strongest current offering.
Palantir's primary focus is on promoting its generative AI offering, AIP. AIP allows users to create large language models with their own data in a secure environment. This is crucial, as securing the data used to feed these models is critical for many of Palantir's customers.
Palantir has a phenomenal product line and plenty of room for growth within its existing offerings. But with how strong of a year 2023 has been, can Palantir have an even better 2024?
Palantir is much more expensive than it used to be
Despite Palantir's strong stock price appreciation, its business hasn't grown nearly as much. In the third quarter, Palantir's revenue increased by 17% to $558 million, a far cry from the greater than 200% movement. That's because investors are willing to pay more for the stock than they were used to.
This is known as multiple expansion, which can be seen in Palantir's drastic price-to-sales ratio increase.
PLTR P/S Ratio data by YCharts.
At the start of the year, investors were only willing to pay about 6.8 times sales; now, they're willing to pay more than 21 times. That's a massive increase, making Palantir transition from a dirt-cheap stock to a very expensive one.
However, if Palantir's business rapidly expands, the hefty premium may be worth it. However, an average of 15 Wall Street analysts expect Palantir to grow its revenue by 20% in 2024, which isn't much faster than it's growing now.
So, could Palantir be 2024's top AI stock? I'd say no. While the company may make massive leaps in its AI technology, sign new customers, and expand its revenue, if it occurs at the pace Wall Street expects, its premium will be too much to overcome.
Many other AI stocks in the market are far cheaper than Palantir, and investors should take a look at them before considering Palantir.
