Palantir (NYSE:PLTR) shares have risen by 55% year-to-date, significantly outperforming the main market indexes. While you could say AI hype has been responsible for some of the upbeat sentiment, there are real positives driving the big data specialist’s business forward.
The company’s AIP (Artificial Intelligence Platform) has been a key driver, fueling robust customer acquisition and accelerating revenue growth on a quarterly basis. In the first quarter, Palantir’s US commercial segment saw a strong performance, adding 41 net new customers, which represents a 69% increase compared to the same period last year and a 19% sequential growth. This is an acceleration from the 55% year-over-year growth reported in the fourth quarter.
These are all points brought up by 5-star investor Beth Kindig, who had highlighted the potential of Palantir’s commercial sector even before the company’s IPO in September 2020, when it was primarily reliant on government contracts.
“AIP and US commercial growth are still the main storyline for Palantir investors to watch moving through 2024, given the two are the primary growth drivers this year,” Kindig noted.
But as has been noted before, the problem from an investing perspective remains Palantir’s lofty valuation. When compared to other “AI-exposed large-cap enterprise software stocks” whose top-line growth and bottom-line margins are like those of Palantir, the shares are trading at elevated levels and its valuation “leaves little to no room for error here.”
For instance, Palantir’s stock trades at over 24 times forward sales, compared to less than 14 times forward sales for ServiceNow. Meanwhile, ServiceNow has reported revenue growth of over 24% in the last three quarters, while Palantir’s growth has been between 17% and 21%. Likewise for other ‘best-of-breed’ software stocks, such as CrowdStrike, Snowflake and Cloudflare, all trading at lower multiples.
“While investors can argue that Palantir deserves an ‘AI premium’ from its product suite, investors will still have to value it as a mature company rather than a hypergrowth SaaS, as it’s no longer in that basket,” Kindig explained. “This is the most expensive Palantir has been on a top-line valuation since November 2021, with revenue growth nearly 30 percentage points slower.”
That, says Kindig, leaves little room for error for Palantir shares as the market is looking for “nothing short of perfection through the end of fiscal 2024.” As such, Kindig rates the stock a Hold (i.e., Neutral). (To watch Kindig’s track record, click here)
A Hold is also the conclusion reached by the analyst consensus, a rating based on 5 Holds, 6 Sells, and 3 Buys. Shares still appear pricey to most; at $22.42, the average price target suggests the stock will shed 16% of its value over the next year. (See Palantir stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
