One of the tried-and-true methods of building generational wealth is investing. Whether it's through real estate, commodities, or the stock market, investing in strong asset classes can help you turn a modest sum of money into healthy heaps of cash in the long run.
Some of the most lucrative investments in modern history are thanks to technology. With artificial intelligence (AI) fueling excitement across the tech sector right now, investors are surely wondering if they should get in on the action. More importantly, you may be asking yourself what companies are emerging as true leaders in AI.
Palantir Technologies (PLTR 1.91%) is a data analytics platform that sells software to the U.S. government and its Western allies as well as commercial enterprises.
Last year shares in Palantir rocketed 167% on the heels of the company's inroads in the AI space. This momentum has poured over into 2024, with shares up another 25% so far this year.
Given the meteoric rise in Palantir stock, it's natural to wonder if the company is the next millionaire maker.
Let's dig into Palantir's business and analyze why it's a strong choice for long-term investors. After taking a close look at the themes fueling Palantir right now, it should become more clear if owning the stock can help you become a millionaire.
NASDAQ: PLTR
Key Data Points
How Palantir struck gold in 2023
The last couple of years have been pretty volatile for the software market. Unusually high inflation and a series of rising interest rates from the Federal Reserve impacted businesses of all sizes.
As corporations slashed budget spend, businesses like Palantir witnessed decelerating growth. The stock cratered to an all-time low of just $6 in December 2022. However, last year the company rebounded sharply as AI euphoria permeated throughout the tech sector.
Last April, Palantir launched its fourth core software suite: the Artificial Intelligence Platform (AIP). The problem? Palantir was overshadowed by a multitude of headline-grabbing investments from big tech stalwarts such as Microsoft, Amazon, and Alphabet.
Palantir resorted to an unconventional lead generation strategy simply referred to as "Bootcamps." Essentially, these are immersive trainings during which prospective customers can test Palantir's various software services. The primary goal of these seminars is to help businesses form a use case rooted in AI.
This strategy has worked so far, as exemplified by Palantir's accelerated customer adoption. Last year the company increased its overall customer count by 35%. Moreover, revenue from U.S. private sector clients rose 70% year over year during the fourth quarter.
Image source: Getty Images.
Is Palantir a good long-term investment?
There are loads of companies looking to cash in on the AI narrative. But like other growth opportunities, there are likely only going to be a finite number of winners in the long run.
One of the most appealing aspects of Palantir is the company's consistent profitability. Many high-growth software-as-a-service (SaaS) businesses have yet to reach profitability on a generally accepted accounting principles (GAAP) basis, or experience inconsistent ebbs and flows in free cash flow.
Palantir's revenue growth is complemented by an expanding margin profile, which has dropped to the bottom line. The company's strong liquidity position provides Palantir with an extra layer of financial horsepower over its peers, and is fueling the engine as it takes on big tech.
Will Palantir make you a millionaire?
At a price-to-sales (P/S) ratio of 21.3, Palantir stock isn't cheap compared to its peers. But a closer look at the chart below should shed light on a couple of important ideas.
Namely, Palantir's valuation multiples expanded in February shortly after the company published an impressive fourth-quarter earnings report. However, over the last several weeks, the stock has experienced some selling activity -- leading to a bit of a dip in share price.
Moreover, despite its rapid ascent, Palantir stock is still down nearly 45% from all-time highs a couple of years ago.
PLTR PS Ratio data by YCharts
Given how much Palantir stock has run over the last year, it's natural for investors to have some trepidation about buying in now at a premium valuation. When assessing any investment opportunity, it's always important to zoom out and think about the bigger picture.
Companies like Microsoft, Alphabet, Amazon, and Apple have all been around for several decades. Each of those businesses have experienced their share of market turbulence and various economic cycles. And yet, the chart below makes one thing abundantly clear: Each of these stocks has been lucrative for investors. The catch is that in order to maximize returns, investors need to exercise patience and a have long-term mindset.
MSFT Total Return Level data by YCharts
It is far more important to spend time in the market as opposed to trying to time the market perfectly. Moreover, consistently doubling down on winners over time and building high-conviction positions in your portfolio is also a proven strategy to generating robust returns.
I'm not suggesting that Palantir could be the next big tech opportunity. Rather, my thinking is that so long as the company operates from a position of strength in a growing market such as AI, holding Palantir stock over the long run could generate massive gains for disciplined investors.
