Palantir Technologies (PLTR) finds itself riding a wave of renewed interest in generative AI, and its stock has been on the upswing as a result. For investors who are fascinated with generative AI, but feel the likes of Nvidia (NVDA) have left them behind, Palantir could be a suitable alternative.
The company’s position as a leading implementer of artificial intelligence solutions has driven up the stock price -- which has surged 94% just in the past six months alone -- amid strong prospects for Palantir’s artificial intelligence software. With the stock now up 140% year to date, compared with the 16% rise in the S&P 500 index, there are clearly high expectations for Palantir. The main question is how much sweeter can things get given the the good news is arguably already priced into the stock?
While the company 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. Still, pundits have questioned whether the company's revenue growth match the high expectations implied the stock price. Company CEO Alex Karp doesn’t appear concerned about Palantir's capabilities, saying the demand for the platform company’s AI platform is “without precedent.”
Meanwhile, Dan Ives, analyst at Wedbush Securities agrees, recently saying that Palantir has built “an AI fortress that is unmatched.” Ives rates the PLTR stock as Outperform with $25 price target. With the stock trading at $15.33, Ives’ $25 target implies potential premiums of close to 65% in the next twelve months. “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,” Ives wrote in the note.
So far the company has matched these high expectations, reporting a 13% year-over-year revenue growth in the most recent quarter, reaching $533 million, which beat the Street estimate and its own guidance of $532 million. Of that total, government revenue rose 15% year-over-year to $302 million. Commercial revenue, specifically enterprise customers, rose 10% year-over-year to $232 million. Notably, U.S. commercial revenue which grew 20%, outpaced U.S. government revenue, which grew at a slightly slower 10%.
While bears would argue that these numbers aren’t necessarily breathtaking, they are nonetheless impressive given challenging macroeconomic environment. What’s more, not only has Palantir’s data center growth showed strength, the company continues to expand its customer base evidenced by the 52% surge in quarterly billings. In terms of profitability, during the quarter, its adjusted operating margin expanded to 25%, yielding $122 million in profit, and beating analysts estimates.
The strong quarterly profit, which was its second consecutive quarter of profitability, allowed the company to pad its net cash balance position which now stands at $3.1 billion, which underscores its strong free cash flow generation. With such as massive cash vault, the management announced a $1 billion stock buyback program. In other words, the company is betting on itself and its ability not only to fulfill the buyback program, but to justify doing so with revenue growth accelerating in the next several quarters.
Can revenue growth match the stock’s performance and the company’s $1 billion stock buyback program? During the Q2 conference call with analysts, CEO Karp said this: ”The demand for AIP [Artificial Intelligence Platform] is unlike anything we have seen in the past twenty years.” Adding that the company is "in discussions with more than three hundred additional enterprises to deploy AIP within their organizations."
Assuming Karp is correct, or even understating his own company’s capabilities, the AI landscape is such that Palantir’s revenue growth rate can only accelerate from here, especially as macroeconomic conditions get better. And this makes Palantir one of the better stocks to own in the next 12 to 18 months.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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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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