The U.S. stock market had a fantastic 2023. The benchmark S&P 500 advanced 24% as economic growth continued unabated in spite of recession fears. And the technology-heavy Nasdaq Composite skyrocketed 43% as investors were swept away by excitement surrounding artificial intelligence.
Admittedly, valuations are elevated compared to a year ago, but there are still stocks worth buying. Palantir Technologies (PLTR 3.73%) and Coupang (CPNG -0.52%) trade at reasonable prices in relation to likely growth trajectories, and both stocks are inexpensive at less than $20 per share.
Here's what investors should know.
1. Palantir Technologies
Palantir beat expectations on the top and bottom lines with its third-quarter earnings report. Revenue rose 17% to $558 million as growth accelerated in the commercial segment, driven by demand for a new product known as AIP (Artificial Intelligence Platform). The company reported GAAP net income of $72 million, up from a loss of $124 million last year, marking its fourth consecutive quarter of GAAP profitability.
Palantir is well positioned to maintain that momentum in the coming quarters. A recent survey from Morgan Stanley identified artificial intelligence (AI) and analytics as the two highest IT spending priorities in the fourth quarter, and Palantir sits at the intersection of those technologies. Specifically, its platform lets businesses integrate data and machine learning (ML) models into analytical applications that improve decision-making.
Moreover, Palantir is a recognized leader in AI/ML platforms. A report from Forrester Research ranked Palantir's commercial platform (Foundry) as the best product on the market, and it awarded Palantir top scores in data exploration, applications, and architecture. Similarly, a report from Dresner Advisory Services ranked Palantir as the top vendor in AI, ML, and data science, scoring the company above Alphabet and Microsoft.
Palantir is leaning into its AI leadership with AIP, a new platform that brings support for large language models and generative AI to its existing platforms like Foundry. The company reoriented its go-to-market strategy around AIP boot camps, interactive workshops where customers learn to use AIP on their own data in just five days. That represents a material acceleration from traditional pilots. To quote CTO Shyam Sankar, "We're running more boot camps per month than we had U.S. commercial pilots all last year."
Going forward, Wall Street expects Palantir to grow sales at 22% annually over the next five years, but that estimate leaves room for upside depending on AIP adoption. I say that because the AI market is expected to grow at 37% annually through 2030. In any case, that consensus estimate makes the current valuation of around 17.1 times sales seem fair.
Investors with a five-year time horizon should add a small position in Palantir to their portfolios today.
2. Coupang
Coupang reported reasonably good results in the third quarter. Total revenue increased 21% to $6.2 billion on double-digit growth in active customers and single-digit growth in revenue per customer. However, the company continued to invest heavily in its Developing Offerings segment (international e-commerce, food delivery, streaming, and fintech services), such that GAAP net income increased just 1% to $91 million.
Coupang runs the largest online marketplace in South Korea. It is also the largest online grocer in the country. That scale creates a network effect that naturally draws more merchants and consumers to its ecosystem, and the company accelerates that flywheel with adjacent products and services. Specifically, Coupang offers consumer-facing delivery services (Coupang Eats), streaming content (Coupang Play) and fintech services (Coupang Pay). It also offers merchant-facing fulfillment, shipping, and advertising services.
That strategy is indeed drawing more consumers to the ecosystem. Active customer growth accelerated to 10% in the second quarter, and it accelerated again to 14% in the third quarter. Coupang hopes to replicate that success in Taiwan. The company made its Rocket Delivery service available to Taiwanese consumers in October 2022, and the early signs are positive. CEO Bom Kim said on the earnings call, "The offering in Taiwan has scaled much faster in its first year of operation than it did in its first year in Korea."
Coupang has multiple ways to grow in the coming years. First, the company has room to expand its commerce business in South Korea, where it holds single-digit market share in retail despite operating the largest online marketplace. Second, it has opportunities with adjacent advertising, logistics, and fintech services. Third, Coupang is still a newcomer in Taiwan, but the company is making inroads. It was on pace to be the most downloaded app in the country in 2023 as of the third quarter.
Wall Street expects Coupang to grow revenue at 12% annually over the next five years. That consensus estimate makes its current valuation of 1.08 times sales looks rather cheap, especially when the two-year average is 1.4 times sales. As a caveat, there is geopolitical risk associated with Taiwan, and the capital required to scale its logistics business will be a headwind to profitability. But patient investors with a five-year time horizon should buy a small position in this stock today.
