Excitement around artificial intelligence (AI) is driving the market to new heights.Both S&P500 and Nasdaq Composite New records were surpassed in just the first few months of this year.
Many of these profits are thanks to the “Magnificent Seven,” a catchy nickname used to describe the world's largest companies, including: microsoft, apple, Nvidia, alphabet, Amazon, teslaand meta platform. But smart investors understand that there is more opportunity in the AI space than just mega-cap technology.
One company emerging as a leader is a big data analytics software company Palantir Technologies (NYSE:PLTR). 2023 was a breakthrough year for the company, with the release of its fourth major product, his Palantir Artificial Intelligence Platform (AIP).
AIP's huge success helped accelerate Palantir's revenue and profits, and investors took notice. But with the stock price up nearly 180% in the last year, is it too late to buy the company's stock?
Wedbush Securities analyst Dan Ives thinks the stock still has room to grow. His price target of $35 per share implies an upside of approximately 59% from the company's current trading level as of market close on April 10th.
Keep reading to find out why picking up Palantir stock is a lucrative opportunity right now.
The Rise of the Palantir Artificial Intelligence Platform
Over the years, Palantir sold three core software products: Apollo, Gotham, and Foundry. But last April, following the release of AIP, the company quietly announced its foray into artificial intelligence (AI). But AIP's launch was largely overshadowed by moves made by big tech companies, including investments in ChatGPT developer OpenAI and its competitors.
To spread the word about AIP, Palantir relied on creative lead generation strategies. Namely, the company began hosting immersive seminars called “boot camps.” During these sessions, prospects were able to demo his Palantir's various software platforms. The idea behind this was to showcase Palantir's technological capabilities in a tangible way, while at the same time helping business leaders identify and shape use cases surrounding artificial intelligence (AI).
Since the launch of this campaign, Palantir has hosted over 850 bootcamps. Additionally, AIP customers have publicly demonstrated how the product is being used to uncover new insights across a myriad of applications.
Although AIP has only been commercially available for about a year, its early success is encouraging. Palantir is making progress in the private sector, increasing his customer count by 35% year-on-year in 2023. In the fourth quarter alone, the company's U.S. commercial revenue grew by a whopping 70%.
The journey has just begun
Sure, it's always nice to see earnings accelerate. For Palantir, this is especially meaningful. That's because the company has faced backlash from Wall Street skeptics for years. Many of them see the company as too reliant on deep government deals with the U.S. military and Western allies.
But AIP proves that Palantir has the legitimate technology capabilities to attract customers from all industries outside the public sector. Considering the big tech trends in the overall AI landscape, Palantir has proven it can compete with the biggest players.
I see 2023 as the first chapter in a long story in the company's AI history. He's moving fast, and other giants in the tech industry are also keen to work with his Palantir AIP. We are well-positioned to continue to see strong revenue growth while maintaining a healthy profitability profile and strong balance sheet.
Premium rating for the price
The chart below shows how Palantir is benchmarked against other leading AI SaaS (Software-as-a-Service) businesses on a price-to-sales (P/S) basis. Based on this metric, Palantir is the most expensive stock among its peers, with a P/S of 23.1.
Palantir's valuation multiple widened dramatically following its surprising fourth-quarter earnings report in February. The stock has seen some momentum since then, but it's only now starting to catch its breath.
And it's not just the revenue growth that's great for Palantir. The company's overall financial situation is solid. The success of the bootcamp has allowed Palantir to keep sales and marketing expenses relatively low. Therefore, unlike many of its competitors, the company is consistently profitable.
In 2023, Palantir expanded its operating margin by 6%. The company generated free cash flow of $730 million in 2023, more than triple the year-over-year.
With the stock trading at such a premium compared to its competitors, investors may be tempted to sell and lock in profits. But I encourage investors to zoom out and look at the big picture.
AIP has acted as a catalyst for Palantir's business and played an influential role in the excitement driving up the stock, but the company's stock is still down 40% from its all-time high. Now is a great time to stock up on stocks as Palantir continues to capitalize on his long-term secular themes in AI.
Using dollar-cost averaging is a smart strategy for starting a position or adding to an existing position. It's hard to look past Palantir because the upside potential is so high.
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Alphabet executive Suzanne Frye is a member of The Motley Fool's board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool's board of directors. Adam Spatacco has held positions at Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Datadog, Meta Platforms, Microsoft, MongoDB, Nvidia, Oracle, Palantir Technologies, Salesforce, ServiceNow, Snowflake, and Tesla. The Motley Fool recommends the following options: His January 2026 $395 long call on Microsoft and his January 2026 $405 short call on Microsoft. The Motley Fool has a disclosure policy.
Once-in-a-generation investment opportunity: Top artificial intelligence (AI) stocks to buy in April before they soar 55%, says one Wall Street analyst Original article published by The Motley Fool
