Given all of the hype around Artificial Intelligence (AI), why are investors not taking a closer look at Palantir Technologies (NYSE:PLTR), which has zoomed up 135% on a YTD basis? Strong U.S. commercial business segment (+15% Y/Y) results in the latest quarter and a rising number of contracts have helped push the stock prices higher.
In the latest reported quarter, Palantir’s customer count expanded 41% Y/Y while government-related revenue increased by 20%.
Palantir Explores New Contracts
In the first week of June, Palantir Technologies nabbed a $463M contract with U.S. Special Operations Command for delivering technology. Also, Panasonic Energy, a Panasonic Group company, signed a multi-year partnership with the company to deliver an operation “Smart Factory” for the Panasonic Energy of North America facility in Sparks, Nevada. The agreement expands Palantir’s signature platform, including AI and edge capabilities in the manufacturing space.
The company recently announced a strategic relationship with Amazon (AMZN), which will bring the former’s foundry product to manufacturers.
CEO Alex Karp Takes Pride in Newer AI Products
Contrary to a recent open letter from the Future of Life Institute signed by major tech companies, Palantir CEO Alex Karp opposed the idea of a pause in AI research on models larger than GPT-4. Karp said, “Many of the people asking for a pause, are asking for a pause because they have no product.”
He believes that the most important thing is not large language models like GPT-4, but instead how AI has been utilized in military applications.
In the company’s recent quarterly earnings release, Palantir promoted a new Artificial Intelligence Platform (AIP), which super-charges a private enterprise network. The system has large language models and a unique cutting-edge AI for defense and military organizations.
For FY23, the company now expects sales to be between $2.185 and $2.235 billion, up from the prior estimate of $2.18 to $2.23 billion.
Is Palantir a Buy, Hold or Sell?
Of the 12 Wall Street Analysts covering the stock, six rate it a Hold while two assign a Buy, and the remaining four stand on a Sell rating. The average price target stands at $10.5 indicating a 30.1% downside potential.
Contrary to the consensus sidelined rating of analysts, Bank of America Analyst Mariana Perez says that post conversations with Palantir customers at AIPCon June 2023, it is known that the company’s technology is five years ahead of its competitors. And thus, she reaffirms her Buy rating today with a price target of $18 implying a 19.8% upside potential.
She adds that unlike many other companies in the sector who needs to satisfy industry compliances and requirements for using generative AI, Palantir, with its extensive government and highly regulated industries experiences, already has the architectural design for supporting generative AI.
Last week, Jefferies Analyst Brent Thill raised his price target on the stock to $14 from $10 on Palantir while maintaining his Hold rating on the shares.
Conclusion
Even though most analysts have a side-lined Hold opinion on PLTR stock, Palantir Technologies also attracts a bull position from a few analysts. A threat to the stock price could be its flat sequential earnings reported in past eight quarters.
