The advent of artificial intelligence (AI) in early 2023 sparked a paradigm shift that is still reverberating across the tech world. The ability of generative AI to increase productivity and streamline processes is already reshaping enterprises, with business leaders lining up to profit from this veritable financial windfall. However, given the complexity of this game-changing technology, some executives simply don't know where to start.
That's where Palantir Technologies (PLTR +3.57%) comes in. The company has developed both the systems and expertise to generate data-driven solutions in real time -- and you can't argue with the results. The stock has gained more than 323% over the past year (as of this writing) and is up 2,850% since early 2023.
Unfortunately, the soaring stock price has driven a commensurate increase in Palantir's valuation. Yet despite the dizzying multiple, some believe that Palantir's momentous run has only just begun.
Let's review Palantir's path to success and recent results, and what Wall Street has to say.
An AI pioneer
Palantir is no Johnny-come-lately when it comes to AI. The company has been working in the shadows, creating AI solutions for U.S. law enforcement and intelligence agencies, for more than two decades. The company pivoted to apply its data analytics and AI expertise to provide real-time data-driven insights and actionable intelligence to enterprises. By integrating its AI solutions into customers' siloed business systems, the company carved out a profitable niche for itself.
With the advent of generative AI, Palantir took its solutions to the next level by developing its Artificial Intelligence Platform (AIP), which leverages company-specific data to deliver tailored solutions. The company also hosts boot camp sessions, pairing clients with Palantir engineers to solve real-world business problems.
The success of this approach is evident. In the second quarter, Palantir's revenue grew 48% year over year, surpassing $1 billion for the first time, fueling adjusted earnings per share (EPS) that soared 78%.
There's more. Palantir's U.S. commercial revenue -- which includes AIP -- soared 93% year over year and 20% quarter over quarter. At the same time, the segment's total contract value surged 222%, showing the accelerating growth ahead.
This ongoing trend is undeniable. Palantir's revenue and earnings have accelerated in each of the past eight quarters, with no signs of slowing.
Wall Street's (short-term) take
Given management's track record of execution and the company's expanding profitability, investors might be surprised to learn that Wall Street is particularly bearish on Palantir's prospects -- but that requires context. The stock's parabolic run over the past few years has sent its valuation into the stratosphere. Palantir is currently trading for 224 times next year's expected earnings, so the stock is undeniably overpriced.
As a consequence, many on Wall Street are leery. Of the 25 analysts who offered an opinion on Palantir in October, only four rate the stock a buy or strong buy, 17 recommend holding, and four rate it underperform or sell. Put another way, 84% of analysts don't believe Palantir is a buy right now.
That said, Wall Street tends to focus on the next 12 to 18 months at the most, but the expansion of AI is expected to continue for a decade or more.
NASDAQ: PLTR
Key Data Points
So, while there's no denying Palantir's lofty valuation, the company still attracts some bullish prognostications. Wedbush analyst Dan Ives is one such analyst, suggesting the stock could surge another 122% to join the $1 trillion club by 2028. To get there, he believes the company could deliver double-digit year-over-year growth for much of the next 10 years. He also warns that investors who focus solely on valuation have missed "every transformational tech stock over the past 20 years."
A way forward
It seems, then, that there are two prerequisites to being a Palantir shareholder. First, you must take a long-term view. Second, you must possess an ironclad constitution, willing to ride out the wild volatility that will no doubt be a consequence of ownership.
For those who are still intrigued by the vast potential ahead for Palantir and eager to stake a claim, consider buying a small position and be prepared to add during the inevitable stock price declines to come. Another strategy for ownership is dollar-cost averaging, which lets investors build a position over time, adding fewer shares when prices are high and more when prices are low.
Finally, being a Palantir stockholder isn't for the faint of heart, but for investors with the fortitude to hold through the inevitable ups and downs and the willingness to buy at better value points, Palantir will likely be a volatile but lucrative investment.
