Palantir Technologies (PLTR +2.53%) has been a winning stock for investors over the long term, as it's advanced more than 500% in five years. Investors piled into the software stock for its strengths in artificial intelligence (AI) -- the company offers customers an easy path to applying this hot technology to their needs.
This AI focus has helped Palantir generate explosive growth in recent quarters and increase profit, too. The company has spoken of high demand that shows no signs of faltering.
But in recent times, Palantir stock has seen its momentum shift into negative territory, losing about 16% since the start of the year. Investors have worried about the durability of AI spending, and that's prompted them to hesitate before buying AI stocks -- particularly ones that have roared higher during this AI boom. Investors have also been concerned about geopolitical and economic uncertainty, elements that generally weigh on growth companies.
Against this backdrop, Palantir stock recently did something for the first time in a year. Is it time to buy this beaten-down AI stock? Let's find out.
Image source: Getty Images.
One of the market's top AI stocks
First, let's take a deeper look at how Palantir became one of the market's leading AI stocks. The company's business may not seem overly exciting: It makes software that helps customers analyze their data and use it in a variety of ways. But Palantir's platforms actually deliver game-changing results in many cases, helping customers become more efficient or even more innovative.
Palantir's Artificial Intelligence Platform (AIP) brings the power of large language models into the mix, and the introduction of this product in 2023 has supercharged growth as customers -- from government to commercial -- have rushed to get in on it. Amid the promise of AI, companies and government agencies are seeking to apply it to their operations, but in many cases, the task may be complicated.
Enter Palantir. AIP offers a fast, easy way to use AI and achieve major results. Palantir even holds bootcamps for potential customers so that they may discover use cases for the software before deciding whether to sign up. This has proven to be a wise manner of building up business as it's resulted in major contract wins and expansions.
NASDAQ: PLTR
Key Data Points
Palantir's soaring revenue
Quarter after quarter, Palantir has offered investors evidence of its strength, delivering double-digit growth, reporting ongoing demand, and lifting forecasts. Customer count and contract value have also been on the rise. In the latest quarter, the number of customers climbed 34%, and the company closed more than $4 billion in contract value -- a record.
This trend over the past few years has supported stock performance. But along with the general headwinds impacting Palantir and other growth stocks, another element has perturbed this player. And that's valuation, which at one point reached a high of more than 240x forward earnings estimates, suggesting the stock was pretty expensive.
In recent weeks, though, Palantir has seen its valuation drop, at one point even falling below 100x forward earnings estimates -- something it hasn't done in about a year.
PLTR PE Ratio (Forward) data by YCharts
Valuation has rebounded from that level, but it remains significantly lower than it's generally been over the past 10 months amid the general uncertainties I mentioned above.
Should you buy Palantir stock?
Now let's return to our question: Is Palantir a stock to buy now that its valuation has come down? Palantir still isn't cheap, so value investors or cautious investors may find opportunities elsewhere that better suit their priorities. But current levels make this stock attractive for investors seeking growth.
It's important to keep in mind that Palantir has seen earnings march higher for a number of quarters, and demand from its commercial and government customers remains healthy. And many of these customers come to Palantir for long-term projects. For example, Palantir and GE Aerospace recently expanded their multi-year partnership, work that ensures aviation readiness for the U.S. Air Force.
All of this should fuel growth in the coming years, potentially boosting stock performance too -- this means that, even though Palantir isn't dirt cheap today, you still may secure impressive returns if you hold onto the stock for the long term.
