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Palantir Technologies (NYSE:PLTR) has been using artificial intelligence (AI) longer than any other company. As a result, the company already has a strong foothold in the field and has become the go-to company for those looking for customized AI programs to support their decision-making.
Palantir had a strong 2023, up 167%, but started 2024 sluggishly. However, when the fourth quarter earnings report was released, 2024 quickly turned around, with him up 30% in one day.
This breakthrough was due to strong results and good coaching, and Palantir looked poised for another strong year. But is it enough to make you a millionaire?
Palantir’s AI products are in high demand
Palantir’s AI software was originally designed for government use. It processed large amounts of data and provided users with actionable insights to make informed decisions. This software was very useful for military and intelligence applications, but was also used in other fields such as auditing.
While Palantir’s government business remains strong (representing 53% of Palantir’s total in the fourth quarter), management has decided to expand its use into commercial applications to expand its overall addressable market. Did. With the AI boom, commercial revenues have recently grown much faster than government revenues, as private companies are much more agile than government agencies.
Commercial revenue in the fourth quarter was $284 million, up 32% from a year ago, and government revenue was $324 million, up 11%. The US led on the commercial front, with US commercial customer numbers up 55% year over year and revenue up 70% to $131 million. Much of this growth is due to Palantir’s AIP (artificial intelligence platform) product. AIP allows businesses to create internally generated AI products that keep internal data safe. This is very important because many companies do not want to put their sensitive information on unknown platforms where it could be exposed to competitors.
While it was an incredibly strong quarter for Palantir, management was even more bullish about 2024.
During the fourth quarter conference call, management said demand for AIP was unprecedented, which drove the strong outlook for 2024. The company expects sales to be approximately $2.66 billion, representing 19% growth.
Palantir’s performance is strong, but is this stock a buy?
Palantir stock is very expensive
Although Palantir is maximizing its profitability, it has not reached its maximum profit margin. As a result, a company’s price to sales (P/S) ratio, measured by the revenue it generates, is a better measure. From this perspective, Palantir is very expensive.
AP/S 23 is a hefty price tag for any company, let alone one growing at Palantir’s pace. The price-to-sales ratio is typically expected to be lower than the year-over-year revenue growth rate. Palantir is bigger.
Another more common metric is the price-to-earnings ratio, which values companies based on their earnings. This is not a great metric for Palantir since its profit margins are not at their terminal level, but using other software companies’ profit margins you can see what value this creates for Palantir.
adobe is a great example of a fully mature software company with a 28% profit margin. If Palantir had the same profit margin, it would trade at a P/E ratio of 81x.
Several companies with similar growth rates are trading below their valuations, which is another reason why Palantir looks like an expensive stock.
So can Palantir stock make you a millionaire? Potentially. However, other stocks offer similar upside potential with much less risk. Palantir is likely to succeed as a company, but the stock’s starting price could limit upside unless Palantir’s performance accelerates beyond its stated guidance.
Should you invest $1,000 in Palantir Technologies right now?
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Keithen Drury has no position in any stocks mentioned. The Motley Fool owns a position in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
Can Palantir Stocks Help You Become a Billionaire? Originally published by The Motley Fool
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