Palantir Technologies (PLTR 1.86%) had a monster year in 2023, with its share price rising by more than 170%. The data analytics company has been thriving due to the emergence of artificial intelligence (AI) and businesses looking to do more computing in the cloud.
But just because Palantir is coming off a great year doesn't mean the stock's rally has to end. Here's a closer look at why the stock could continue to do well in 2024.
NASDAQ: PLTR
Key Data Points
Demand for AI is likely to grow much higher
There was a lot of hype surrounding AI in 2023, but the reality is that many businesses are still only beginning to incorporate AI into their operations. According to a recent survey from CNBC, 55% of technology officers (across many sectors in the economy, not just tech) said that their companies would be investing in generative AI software within the next six months.
This is consistent with a report from Gartner, which estimates that in 2023 less than 5% of enterprises will have utilized generative AI models or interfaces within their production environments. By 2026, that percentage will jump to more than 80%.
One company that's sure to benefit from that surge in AI demand is Palantir, which has been using AI bootcamps to help businesses identify use cases for AI, effectively helping the company sell prospective customers on its AI platform.
A decline in interest rates may incentivize more growth-related spending
Another potential catalyst which could help Palantir in 2024 is a falling interest rate. The Federal Reserve is reportedly looking to make as many as three interest rate cuts during the year. A lower interest rate means a lower cost of capital for businesses, which may entice more companies to invest in growth objectives, such as AI and next-gen technologies.
Rising interest rates have put a damper on growth stocks, but the reverse could help Palantir and other growth-oriented companies perform better. If there's a soft landing for the economy in 2024 and interest rates come down, look for Palantir's share price to benefit from those developments.
Continued profitability will only make Palantir a more tenable investment
Palantir has recently become a profitable company, as opposed to just a fast-growing tech business. In the trailing 12 months, Palantir has reported net income of $147 million on revenue of $2.1 billion. It has turned a profit in each of its past four quarters, and its improved financials should pave the way for the stock's inclusion into the S&P 500. It may only be a matter of time before that happens, which could give the stock yet another boost. Being on the broad index will mean it's included in more funds, and more investors will have exposure to Palantir's stock in their portfolios.
More importantly, however, is that continued profitability. Palantir's profit margin was just under 13% last quarter, and if it is able to maintain strong profits into next year (and there's no reason to expect that it won't be able to), then that will make it an even better buy, and also bring down its earnings multiple in the process -- the stock currently trades at 250 times its trailing earnings.
PLTR Profit Margin (Quarterly) data by YCharts
It's not too late to invest in Palantir stock
Palantir's business has some promising growth prospects, and with a strong and diverse operation, the company looks to be in great shape to continue performing well in 2024. While it did have an exceptional year in 2023, investors shouldn't forget Palantir is also recovering from an abysmal performance in 2022 when its stock tanked by 65%.
The tech stock should continue to do well in 2024, and in the long run it looks like an excellent buy as this business is on the cusp of much more growth ahead.
