Some of the hottest artificial intelligence (AI) stocks include: Nvidia or super microcomputer is approaching $1,000, putting it out of reach for many investors who don't have access to fractional shares. Fortunately, another top AI stock is under $25, and investors should consider this stock if they want to increase their exposure to AI without biasing their portfolio towards one company.
Palantir Technologies (NYSE:PLTR) is a great AI investment and can be purchased for less than $25. But is now the right time to buy?
Palantir's new AI product is taking the US by storm
Palantir has been in the AI business much longer than many of its peers. As a result, we have cultivated many years of experience that other companies cannot imitate.
Palantir's AI product line was originally developed and deployed for government to ingest massive data streams and provide personnel with the best possible information to make real-time strategic decisions. Ultimately, the software was expanded beyond government use, greatly increasing Palantir's market opportunity.
Although these products deal with AI in the traditional sense, the AI that most people are talking about today is different from the AI of yesterday. Now, when most people mention AI, they are discussing generative AI, the technology behind products like ChatGPT. This is a powerful area of AI with many use cases, but it is not easy to integrate into internal systems.
However, Palantir’s AIP (artificial intelligence platform) helps clients do just that.
AIP gives developers the tools they need to integrate AI into every level of their business and use their own data without fear of information leaking into the public domain. With the tools to implement AI within your business, AI has become a very popular product. “We've never seen the level of customer enthusiasm and demand that we're currently seeing from AIP in U.S. commercial,” Chief Revenue Officer Ryan Taylor said on Palantir's fourth-quarter earnings call. said.
AIP is a fast-growing company in the U.S. commercial sector, giving Palantir a significant financial boost.
Palantir's business is good
U.S. commercial revenue rose 70% year over year to $131 million in the fourth quarter. While this is a great result, it still doesn't account for the majority of Palantir's revenue. The largest portion of Palantir's business comes from government revenue, amounting to $324 million of a total of $608 million.
The U.S. commercial accounted for less than half of its total commercial revenue, as Palantir earned $284 million worldwide. But if U.S. commerce can maintain its growth rate, which should be possible given the high demand for AIP, the tables could turn later this year.
Unlike many software companies, Palantir has focused on running a profitable business. Palantir has made a profit in each quarter of 2023, with the fourth quarter being its most profitable period to date.
But Palantir's stock isn't cheap from a valuation standpoint, so the business's success and increased profitability come at a price.
Palantir trades at a very high forward price-to-earnings ratio (P/E), which makes sense since it's unlikely to reach maximum profitability in 2024. A price-to-earnings ratio of 23 is also very expensive, especially when you consider Palantir's price-to-earnings ratio. Overall revenue growth in the fourth quarter was 20%.
For Palantir to maintain its premium valuation, it will need to increase government revenue and maintain levels of U.S. commercial growth. If you can do that, it's worth paying the premium.
But if you want a little exposure to the AI space, even at a low stock price, there are few better stocks than Palantir. The stock price is high because there are high hopes for Palantir's success. If you can maintain these impressive results over the next three or five years, the premiums you pay today could become worth it in a few years due to growth.
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 has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.
Do you have $25? “He Can Buy One of the Top Artificial Intelligence (AI) Stocks on the Market” was originally published by The Motley Fool
