Palantir (PLTR +2.45%) has been one of the most popular artificial intelligence (AI) stock picks over the past few years. However, its stock has faltered as of late. The stock has failed to meaningfully participate in the AI rally that kicked off in April, and is down around 35% from its all-time highs. Furthermore, the company reported a blowout first quarter, yet the stock hasn't budged.
This may look like a genius buying opportunity for Palantir stock if you missed out on the initial rise. But is it a solid buy now or a trap?
Image source: Palantir.
Palantir's attractiveness depends on what you value as an investor
Depending on how you look at Palantir's stock, it's either a no-brainer buy or a company to stay far away from. This dichotomy makes the stock hard to analyze, as it really comes down to individual investor preference.
From a growth standpoint, Palantir is crushing it. Its data analytics AI platform has been supercharged with the integration of generative AI. This has caused monster growth and allows Palantir's platform to perform tasks that humans normally would have had to do. With AI, insights are available nearly instantly, allowing anyone with decision-making authority to have the best information available at all times. The platform was originally catered to government use, but it has now stretched into the commercial space.
NASDAQ: PLTR
Key Data Points
Both commercial and government divisions are thriving, with commercial revenue rising 95% year over year to $774 million in Q1, and government revenue increasing 76% to $858 million. This led to an overall growth rate of 85% year over year. Palantir isn't just a growth-at-all-costs business either; it put up an impressive 53% net income margin in Q1. That's incredible growth and profitability combined into one, and if that's the only thing you're looking at, Palantir would appear to be a no-brainer buy.
The problem is that the stock is incredibly expensive.
Despite being about 35% off its all-time high, the stock still trades for 151 times trailing earnings and 92 times forward earnings.
PLTR PE Ratio data by YCharts
That's a high valuation, and showcases the incredible growth expectations that are already baked into the stock. The investment question becomes: "Can Palantir grow fast and long enough to justify the high price tag I'm paying today?" If the answer is yes, then Palantir stock is a buy. If it's no or unsure, then Palantir is probably a stock to avoid because there are several AI stocks that are far cheaper than Palantir and are growing at a similar rate or even faster.
