Ken Griffin has proven his ability to choose stock market winners. The billionaire founded Citadel back in 1990, and Citadel since has become the most profitable hedge fund manager ever. Today, the $64 billion fund invests in a variety of stocks, including some of the technology giants that have led the S&P 500 to record levels this year.
Considering Griffin's stock picking successes, it's no surprise that investors watch his every move in search of new and potentially profitable investment ideas. Just recently, Griffin took a stance that goes against the average opinion of Wall Street analysts. He lifted his investment by 1,000% in an artificial intelligence (AI) stock that's skyrocketed this year -- but analysts now predict this player will decline in the double digits. Does Griffin know something Wall Street doesn't? Let's find out.
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Ken Griffin's AI bet
As mentioned, Griffin is invested in a wide variety of technology powerhouses, including top names like Microsoft, Nvidia, and Amazon, and this has offered him exposure to one of today's highest-growth fields: AI. The AI market is forecast to expand from the current value of $200 billion to $1 trillion by the end of the decade, and if this happens, these early AI players, and their investors could score a major win.
In a move that further boosts his AI bet, Griffin increased his holding of Palantir Technologies (PLTR 1.52%) by more than 1,100% to 5,680,767 shares in the second quarter. This is as the average analyst opinion advises holding the stock -- and analysts forecast Palantir shares will drop 32% in the coming 12 months. Palantir shares have surged 150% this year.
NASDAQ: PLTR
Key Data Points
It's true that Palantir, trading at 120x forward earnings estimates, has become pricey -- even for a growth stock. For example, the stock's valuation well surpasses that of Microsoft, Nvidia, and Amazon. This is an element that has pushed some analysts and investors to put the brakes on their optimism about the stock.
PLTR PE Ratio (Forward) data by YCharts
But it's important to look at the long-term picture, which extends well beyond 12 months from now. The trends we are seeing show Palantir's earnings potential over the long haul could be significant thanks to a major new growth driver: the commercial customer.
Palantir's commercial customer growth
Palantir helps customers aggregate their data and use it to make better business decisions or gain in efficiency -- and often this leads to tremendous cost savings and even game-changing moves. The company in the past generated most revenue and growth from government contracts, but in recent times and along with its focus on AI, the commercial customer has emerged as a key to growth.
In the most recent quarter, for example, the number of U.S. commercial customers rose 83% to nearly 300. That's compared to only 14 U.S. commercial customers about four years ago. And revenue from these customers climbed 55% to $159 million in the quarter. These businesses are flocking to Palantir's Artificial Intelligence Platform (AIP) -- a system launched last year -- and the company even calls demand "unrelenting."
All of this helped Palantir generate $134 million in net income in the quarter, for the most profitable quarter in its 20-year history. Though Palantir has been around for years, this newfound success in the commercial world along with government business growth that continues to climb in the double digits could result in an entirely different revenue picture over the long term. So, yes, the stock looks expensive today, but if revenue explodes higher several years from now, investors who got in at this time won't regret it.
Of course, Palantir stock may not soar overnight after its performance so far this year. But, considering the company's earnings track record in recent times as well as the momentum in the commercial business, there's reason to be optimistic about the stock's long-term prospects. This may be why Ken Griffin boosted his holding in Palantir recently -- going against the average Wall Street opinion and potentially heading for a major gain over the long run.
