Palantir (PLTR 1.38%) shareholders have been laughing all the way to the bank in 2023. Year to date, the stock has delivered a nearly 170% return, powered by solid financial results.
Even better, there are good reasons to believe Palantir will be able to sustain its strong momentum in the coming quarters, and perhaps years. So now would be an excellent time to start paying attention to this artificial intelligence (AI) company or consider adding it to your portfolio.
Palantir has just reached an inflection point
Palantir isn't a household name like Amazon, but it's not a new company, and it's far from obscure among growth investors. The tech company serves government agencies and business customers by helping them better understand their datasets, which allows them to make better decisions.
In return, clients pay Palantir subscription fees for using its software and other professional fees for consultation, training, and support. Judging by its growth over the last few years -- revenue almost doubled from $1.1 billion in 2020 to $1.9 billion in 2022 -- its customers find the company's offerings valuable.
But like most growth companies, Palantir had to invest heavily in its expansion, which resulted in it booking net losses in the last three years. Those losses were a nonstarter for many conservative investors.
However, things are changing in 2023. The tech company reported its first GAAP (generally accepted accounting principles) operating profit in the first quarter and kept it up over the next two quarters. It was a significant milestone for the company and demonstrated the validity of its business model.
Management has forecast that its 2023 revenue will reach $2.2 billion, around 16% growth from the $1.9 billion revenue it booked in 2022. It also expects to deliver positive GAAP net income in the final quarter of 2023, which would mark its fifth consecutive quarter of profits.
In short, the company is entering a new phase of sustainable and profitable growth.
Palantir has solid growth drivers
Palantir has been riding the analytics trend as it provides the tools government agencies and businesses need to make sense of their ever-growing stockpiles of data. The rise of AI provides another tailwind that should keep its growth machine spinning.
Its most obvious opportunity will be to leverage existing relationships to launch new products and services. For instance, in response to the recent developments in generative AI, it launched the Palantir Artificial Intelligence Platform (Palantir AIP), enabling enterprises to use existing machine learning technologies alongside large language models to parse their private data.
Moreover, as AI technology develops further and its use cases grow, Palantir is in a prime position to launch new tools and services to help governments and businesses benefit from the use of AI. That, in turn, will help the company grow its wallet share.
Besides, Palantir can leverage its experience and technological know-how to attract and retain new customers. In particular, commercial customers are increasingly aware of the importance of AI in developing and keeping competitive advantages. Palantir's commercial revenue grew 23% in the third quarter, far faster than its government unit's 12% growth.
Moreover, as the company has now turned profitable, it's in an even stronger position to invest for the long term in top talent and world-class technology.
Palantir is an AI stock to watch
Palantir has shown that it can grow profitably, making it a less risky investment than it was. Besides, it's at the forefront of AI development, which could prove to be multi-decade tailwind.
This is an excellent company to add to your watch list as we enter the new year.
