Add Palantir Technologies (PLTR) to the long list of stocks that has surged amid the AI-driven momentum. The stock has gone on an impressive run, skyrocketing 122% in six months on investors’ hopes for its artificial intelligence software.
The analytics platform specialist is set to report second quarter fiscal 2023 earnings results after the closing bell Monday. When looking at its stock performance, it’s even more stunning that the shares have returned close to 200% year to date, including 20% over the past month. This compares with a 17% year-to-date rise in the S&P 500 index. But how much sweeter can things get? It's reasonable to suspect that all the good news expected in the earnings report are already priced into the valuation.
The main component behind that rise is the company’s AI capabilities. While Palantir is broadly known for its work with the U.S. government’s defense and intelligence agencies, its data analytics capabilities now includes a number of AI-powered services for organizations across public and private sectors. In referring to Palantir’s new artificial intelligence platform, CEO Alex Karp said the demand for the platform is “without precedent.” Dan Ives, analyst at Wedbush Securities agrees, recently saying that Palantir has built “an AI fortress that is unmatched.”
Ives rates the stock as Outperform with $25 price target. “We believe PLTR will capitalize on the expansion of new use cases over the next 6-12 months given its large partner ecosystem and extensive product capabilities, by servicing the rapidly increasing demand for enterprise-scale generative artificial intelligence,” Ives wrote in the note. On Monday, investors will be watching for these growth metrics to assess whether to keep boosting Palantir’s stock value.
In the three months that ended July, the Denver, CO-based company is expected to earn 5 cents per share on revenue of $534.34 million. This compares to the year-ago quarter when earnings came to 1 cent per share on revenue of $473.01 million. For the full year, ending in January, earnings are expected to rise 250% year over year to 21 cents per share, while full-year revenue of the $2.21 billion would rise 16% year over year.
The company relies on both government and commercial clients. In the most recent quarter, its commercial clients accounted for roughly 43% of total revenue. While the company continues to expand its commercial business, this has come at the same time that both interest rates and inflation were on the rise: Rising inflation has pressured Palantir's business as many companies have begun to slash their discretionary spending to better manage the recessionary environment.
The good news is that the government segment accounts for close to 60% of revenue in the most recent quarter, and has consistently growing revenue spanning more than six quarters. However, it’s the company’s new direction towards AI that continues to capture headlines. Analyst Brian White of Monness, Crespi, Hardt said the company has pivoted its narrative to the promise of AI, notably generative AI, amid "troubling" cloud trends.
"We believe this newfound mantra has provided companies with an enticing investment thesis to pacify the market during these challenging times," White explained in an investor note. These trends are likely to continue in the quarters ahead. In the first quarter, not only did the company beat on both the top and bottom lines, its customer count rose 41% year over year and 7% sequentially, ending the period with 155 customers.
The company generated $236 million in commercial revenue, while government-related revenue rose 20% year over year to $289 million. To keep the stock on the uptrend, Palantir on Monday will need a strong top- and bottom line beat, along with confident guidance to keep investor confidence high.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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