Palantir Technologies (PLTR -3.23%) has been on a wild ride in 2023, surging alongside the broader technology sector and the unstoppable force that is artificial intelligence. The stock has skyrocketed a jaw-dropping 177% this year, leaving the S&P 500 in its dust with a mere 14% gain. This impressive feat has essentially wiped out last year’s disastrous performance when the stock plummeted over 64%. But fear not, my friends, because Palantir has made a remarkable comeback. It’s almost back to square one since the start of 2022.
Now, some folks are debating just how far this AI craze can go. But Palantir is reaping the rewards of its two decades of algorithm wizardry, long before AI became the talk of the town. And let’s not forget the company’s improving financial results over the past year. It appears that the economic storm that once weighed it down is finally starting to ease up.
But what does all this mean for you, the investor who maybe missed out on Palantir’s recent rally? Are you now contemplating whether to jump in and hold on for the long haul, or are you thinking about swerving because of the frothy valuation? It’s a tough call, my friends.
Let’s dissect last year’s struggles
Let’s take a moment to mull over the tough times Palantir faced in 2022. The macroeconomic headwinds were fierce, my friends, some of the worst in over a decade. Businesses everywhere were battening down the hatches, slashing spending left and right. Discretionary budgets were gutted, and caution ruled the day. Some argued in favor of data-driven decision-making, but many preferred the “better safe than sorry” route.
And all this adversity took its toll on Palantir’s performance. Sure, its revenue had a decent 24% increase, but that paled in comparison to the impressive 41% gains it achieved in 2021. The sharp decline in revenue growth made investors quake in their boots, causing some to flee for the exits. But my friends, those sellers may have jumped ship prematurely.
While some companies are just now hopping on the AI train, Palantir has a long history of developing custom AI and data mining solutions for government agencies and enterprises. That track record provides a hefty dose of credibility, ensuring that their AI offerings will indeed deliver the goods.
What lies ahead for Palantir?
Now, my friends, it’s time to look into Palantir’s future. Yes, the AI revolution will undoubtedly bring more winds to fill the sails of this company, but investors are also focusing keenly on one key factor: that ever-improving bottom line.
Palantir’s recent results are continuing a trend that started a few quarters back. In Q2, the company achieved its third consecutive quarter of GAAP profitability, showing us that they’re on a path to sustained and durable earnings. And listen to this, my friends: Palantir’s history of strong operating and free cash flow suggests that this trend will carry on. Not only did they surpass Wall Street’s expectations, they even raised their guidance for the full year and initiated a $1 billion stock buyback. Can you believe it?
Come, my friends, let’s delve into management’s optimistic words. Palantir’s recently introduced Artificial Intelligence Platform (AIP) has already been adopted by over 100 organizations, and negotiations are underway with 300 more! Can you feel the buzz in the air, my friends?
CEO Alex Karp points to the growing demand for generative AI that can leverage first-party data from enterprises. “The demand for AIP is unlike anything we have seen in the past 20 years,” he said. And let me tell you, my friends, the potential market for artificial intelligence is mind-boggling. Goldman Sachs estimates it will reach a colossal $7 trillion by the end of this decade, while Morgan Stanley calculates it at a modest $6 trillion. Even the most conservative estimates are staggering. Analyst John Blackledge suggests that the market for generative AI software could hit $81 billion by 2027. I mean, wow!
So, my friends, the opportunity for Palantir to tap into this potentially massive market is simply enormous. Don’t you think?
How should we approach Palantir stock now?
Now, let me address the elephant in the room, my friends. Palantir’s stock price has been on a tear this year, and that means its valuation has shot up too. It’s currently trading at approximately 18 times trailing sales and 14 times next year’s sales. So, it’s clear that a significant amount of growth is already baked into the stock’s price. Now, if you’re looking to make a quick buck, I’d advise you to steer clear.
But hey, for those of you with a long-term perspective, this could be an opportunity. Palantir’s expertise gives it a clear advantage, and the tailwinds driving its growth seem to have staying power. Moreover, Wall Street is expecting double-digit percentage revenue growth and a fourfold increase in earnings per share by 2024. Can you believe it, my friends? This might just be the beginning of a marathon run for Palantir.
Danny Vena has positions in Palantir Technologies. The Motley Fool has positions in and recommends Goldman Sachs Group and Palantir Technologies. The Motley Fool has a disclosure policy.