Palantir Technologies (PLTR +5.99%) has been on a roll. Quarter after quarter, this tech company has reported soaring revenue and profit -- and has offered investors evidence of ongoing high demand. The company sells software systems that allow customers to easily harness the power of artificial intelligence (AI) to address their needs. With companies eager to get in on this promising technology, it's no surprise that they like what Palantir has to offer.
All of this has translated into explosive stock gains, too, with the shares advancing a mind-boggling 1,500% over three years. Though this sounds like the perfect investment story, Palantir has faced one problem over the past few years, and that's a surging valuation. It's discouraged some investors from buying and prompted caution from certain analysts, too.
Still, the company's earnings picture remains bright, with growth marching on. Palantir started this week off with a bang, delivering yet another blowout report. Against this backdrop, should you still worry about valuation -- or is it time to buy Palantir? Let's find out.
Image source: Getty Images.
Palantir's 20-year story
First, a bit of background on this red-hot tech stock. You might expect this company to be a young growth player -- but it's actually been around for more than 20 years. Palantir mainly served governments with its software during its earlier days and only launched its initial public offering a few years ago. And even then, it wasn't quick to take off. In fact, after climbing post-IPO, the stock then fell from its peak and stagnated through 2022 and 2023.
NASDAQ: PLTR
Key Data Points
Meanwhile, Palantir didn't focus on those troubles and instead continued to grow its technology. The company launched Artificial Intelligence Platform (AIP), its AI-driven software that helps customers gather their data, analyze it, and use it to make game-changing moves. AIP has proven to be popular with both government and commercial customers and has supercharged earnings growth.
In the latest quarter, U.S. commercial revenue surged 137% to $507 million, U.S. government revenue advanced 66% to $570 million, and the company delivered a record profit of $609 million.
Quarter after quarter, Palantir has offered many examples of its AIP bootcamps resulting in major contracts. These events allow potential customers to get a taste of how AIP could work for them -- it's a genius idea that has been bearing fruit year after year.
Why is AIP a game changer?
Now you might wonder: Why has AIP been such a game changer for Palantir? As mentioned, AIP offers customers an easy road to AI. They don't have to build out a system or try to figure out how AI might help them. Instead, they can sign up for an AIP bootcamp, discover possible uses for their business or government agency, and almost immediately apply AI to their problems.
The U.S. government always has been a major Palantir customer, but the commercial customer represents a new growth driver for the company. Just five years ago, Palantir had about 14 U.S. commercial customers -- it now has 571. That's incredible progress, yet it still leaves plenty of room for additional growth in the years to come.
Now let's return to our question: After Palantir's explosive earnings report, should you continue to worry about the stock's valuation? It's true that by traditional measures, it trades at a very high level, though it has dropped considerably from its peak.
PLTR PE Ratio (Forward) data by YCharts
Value investors still wouldn't go for Palantir at such levels, and cautious investors, also, may not favor this stock. But if you're a growth investor, it's important to keep in mind the following: Valuation measures don't take into account potential growth several years down the road. If Palantir's momentum continues -- we haven't seen signs of it letting up -- the stock could have room to run. So, I wouldn't worry too much about valuation as long as Palantir's earnings trends remain strong.
And all of this means if you buy Palantir at today's level and hold on for the long term, you may score a significant win.
