The past year has been outstanding for Palantir Technologies (PLTR 3.73%) investors. Share prices of the company, which provides data-analysis-focused software platforms to governments and businesses, shot up a whopping 163%. Even better, the red-hot rally shows no signs of slowing. Palantir stock jumped 31% in a single session after the company released fourth-quarter 2023 results on Feb. 5.
Let's look at why investors are excited and then check out the catalysts that could send this high-flying tech stock higher over the next year.
Palantir expects a bigger profit in 2024
Palantir's fourth-quarter revenue increased 20% year over year to $608 million, while non-GAAP earnings doubled to $0.08 per share. Analysts anticipated Palantir would report $0.08 per share in earnings on revenue of $603 million. It is also worth noting that the company ended the year with a generally accepted accounting principles (GAAP) profit of $210 million, making 2023 Palantir's first profitable year since it was founded in 2003.
The full-year GAAP profit exceeded analysts' expectations of $194.5 million. What's more, Palantir's forecast for 2024 is ahead of consensus estimates. The company anticipates full-year revenue to land at $2.66 billion, an increase of 19% over last year. That would be an acceleration over the company's 2023 revenue growth of 17% to $2.23 billion. Analysts had pegged revenue estimates at $2.64 billion.
What's more, Palantir has guided for an adjusted operating income of $842 million this year at the midpoint, exceeding consensus estimates of $760 million by a big margin. The operating income guidance points toward a substantial jump of 33% from 2023 levels of $633 million, indicating that Palantir could deliver strong earnings growth once again this year.
However, don't be surprised to see Palantir's revenue and earnings grow at a faster pace than its expectations in 2024, thanks to the robust demand for the company's artificial intelligence (AI) solutions.
AI could help the company clock stronger growth
Palantir has witnessed a remarkable acceleration in deal momentum of late. The company struck 103 deals worth $1 million or more in the fourth quarter of 2023, which was nearly twice the number in the prior-year period. Of these, 21 deals were worth $10 million or more, while 37 deals were worth at least $5 million.
It looks like the AI boot camps that Palantir organized last year are translating into more customer wins. These boot camps were organized to help organizations apply Palantir's Artificial Intelligence Platform (AIP) in their operations. Management pointed out on the latest earnings conference call that the company has "completed more than 560 boot camps across 465 organizations to date," and is "deploying AIP to implement hundreds of real tangible use cases in production for our customers."
These boot camps are driving tangible growth for Palantir, with Ryan Taylor, the company's Chief Revenue Officer and Chief Legal Officer, pointing out:
We're already seeing evidence of boot camps helping to significantly compress sales cycles and accelerate the rate of new customer acquisition ... And we more than doubled the number of U.S. commercial deals with [total contract value] TCV of $1 million or more from the fourth quarter in 2022 to 2023.
Additionally, Palantir is witnessing a jump in customer spending. The TCV of its U.S. commercial customers was up 107% year over year and 42% on a sequential basis in Q4. All this explains why Palantir's commercial revenue increased 32% year over year in the previous quarter to $284 million, outpacing its overall revenue growth.
Not surprisingly, Palantir is focused on "accelerating the rate of boot camps with current and prospective customers," which could eventually help the company sustain the impressive growth of its commercial revenue over the next year and beyond. This explains why analysts have substantially increased their revenue growth expectations from Palantir.
PLTR Revenue Estimates for Current Fiscal Year data by YCharts
How much upside can investors expect over the next year?
Palantir stock trades at 22.5 times sales. Investors may be wondering if it is worth buying Palantir at this valuation, especially considering the stock's big post-earnings surge. However, the company can justify its sales multiple thanks to the impressive jump in its deal momentum that could eventually help it outperform expectations. Also, as the following chart suggests, Palantir's forward sales multiple is at a much lower level thanks to the growth it is expected to deliver.
PLTR PS Ratio data by YCharts
Additionally, the massive gap between Palantir's trailing and forward earnings multiples points toward a solid jump in the company's earnings.
PLTR PE Ratio data by YCharts
So, investors would do well to look past Palantir's valuation, especially considering that the market may reward it with a premium valuation thanks to the robust AI opportunity that's accelerating its growth. After all, the deployment of Palantir's AIP led to a healthy 56% year-over-year growth in billings last quarter to $605 million. Remaining performance obligations, which refer to the total value of contracts to be fulfilled in the future, increased 28% year over year to $1.24 billion.
All this indicates that Palantir could end 2024 with more revenue than it is currently anticipating. Assuming Palantir delivers 25% revenue growth in 2024, its top line could hit almost $2.8 billion. If the market rewards it with a price-to-sales ratio of 25 after a year because of its improving growth, Palantir's market cap could hit $70 billion in a year.
That would be a 47% increase from current levels, which is why investors looking to buy an AI stock right now should consider buying Palantir before it surges higher.
