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Palantir Technologies ( NASDAQ:PLTR ) is a company that's been on a roll this year. Shares of PLTR stock have roughly doubled since the beginning of the year, and have been on a more recent roll. In fact, the company's stock price surged more than 11% after the company announced an impressive collaboration with Microsoft ( NASDAQ:MSFT ) to deliver enhanced analytics and AI services to classified networks of national security importance. As a trusted government contractor, Palantir has clearly benefited, and dragged some of its tech peers higher along the way.
Palantir's big data capabilities, and its recent AI integrations, have created a surge of interest among not only government entities, but commercial clients. This is one of the key bullish catalysts many investors are focused on, and it's a revenue and profit driver that's worth exploring. With increasing investment in growing its commercial client base, there is good reason why Palantir has seen its stock price soar this year.
Of course, at more than 30-times sales, this is a stock that's priced for perfection. And maybe that's putting it lightly. So, let's dive into whether this AI and big data stock is worth buying at current levels, or on dips moving forward.
Key Points About This Article:
- Palantir has become one of the biggest beneficiaries of the AI secular growth trend, and continues to see strong growth from its government and commercial businesses.
- At its current valuation, some investors are rightly concerned, so let's dive into why this stock could still be among the hottest AI plays right now.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report . It features a software stock we’re confident has 10X potential.
Collaboration with Microsoft
Image of a Microsoft sign in front of the company's office buildings
Palantir's recently-announced partnership with Microsoft is one that investors certainly want to pay attention to. The U.S. Defense and Intelligence Community has continued to tap Palantir for its services, with additional asks for new AI, cloud and analytics capabilities for its core operations.
The goal of this partnership will be to integrate Palantir's AI platforms used for government cloud environments with Microsoft's Azure OpenAI service. It's expected that this suite will be deployed across existing Azure Government clouds, enhancing AI-based operations in logistics, contracting, and action planning.
The consortium highlighted that services depend on authorization by government agencies. Microsoft's management team emphasized the partnership's role in advancing secure AI deployment for the U.S. government. Palantir echoed how important this collaboration is, called it a major step to boost defense and intelligence performance, leveraging Microsoft's clouds and AI models for national security.
Solid Artificial Intelligence Ambitions
3D image of a brain and its blood vessels
Palantir's dual customer base (originally government-focused), still drives over half its revenue. Expanding into commercial sectors, Palantir's AI software has seen remarkable growth, applicable across industries. Its Artificial Intelligence Platform (AIP) has fueled unprecedented demand, boosting U.S. commercial revenue by 40% year over year in Q1.
In Q2 , Palantir's revenue grew 27% year-to-date to $678 million, driven by both government and commercial sectors. The company reported $149 million in adjusted free cash flow and expects $800 million to $1 billion for the year. With $4 billion in cash, Palantir is set to invest $450 to $500 million in R&D in 2024, continuing its growth trajectory.
Palantir's growth has accelerated due to AIP bootcamps, with 1,205 organizations participating since mid-2023, leading to new deals. By June, Palantir's customer count reached 593, up 172 year-over-year, with U.S. commercial customers growing 9x in three years. In Q2 FY24, the company secured 96 deals worth $1 million or more, including 27 over $10 million, ensuring sustained growth.
Palantir Stock Could Be a Buy On Dips
The Palantir logo shown on a smartphone in front of a stock chart in the background
Palantir Technologies offers a suite of software platforms addressing complex data challenges. Palantir Gotham supports government agencies with advanced big data analytics for critical tasks. Palantir Foundry serves businesses by building and analyzing data pipelines. And Palantir Apollo ensures seamless integration between Gotham and Foundry. This diverse product range establishes Palantir as a leader in big data analytics for both government and commercial sectors.
The company’s economic moat stems from its proprietary software and strong government ties, offering a unique competitive edge. Its flagship product, Gotham, is exclusive and bolsters its market position. With robust financials, growing commercial revenue, and strategic AI initiatives, Palantir presents a compelling long-term investment opportunity, despite valuation risks.
Add in the company's recent Microsoft partnership and its strong growth trajectory, and it's easy to see why some investors want to jump on this stock before it soars even higher. That said, it's expensive at its current multiple. This is a stock that I think can fly if the next leg of the AI hype train is around the corner (fueled by interest rate cuts), but it's also a stock that could see big downside if a recession hits. Thus, that's the high-risk, high-reward nature of such a stock. So far, it's a tradeoff that's paid off for investors.
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