Investors looking to capitalize on the potential of artificial intelligence (AI) could do worse than investing in Palantir Technologies (NYSE: PLTR) . The company has a long track record of developing AI solutions for the U.S. government and has become a rising star in the field of AI for business. Palantir's move to develop data-centric solutions for enterprises was already gaining traction before the dawn of generative AI shifted the technology landscape.
Despite the recent market sell-off -- which hit technology stocks particulary hard -- Palantir's upside potential has changed dramatically in recent quarters, driven by its novel approach to creating generative AI solutions for its customers. As a result, the company just delivered record results with the promise of more to come.
Here are five reasons to buy Palantir Technologies stock like there's no tomorrow.
Image source: Getty Images.
1. Palantir's accelerating revenue growth
For the second quarter, Palantir generated record revenue of $678 million, up 27% year over year and 7% quarter over quarter. Analysts' consensus estimates were calling for revenue of $652 million, so Palantir cleared that hurdle with ease.
However, it was the company's U.S. commercial segment that turned heads, with revenue growing 55% year over year to $159 million, while the segment's customer count surged 83% and now represents half of Palantir's customer base. At the same time, its lumpy government revenue grew a respectable 24%.
Even more impressive was the U.S. commercial segment's remaining deal value (RDV) -- or the value of the contract's not yet recognized as revenue -- which grew 103% year over year and 11% sequentially. The growing backlog of business illustrates that demand for Palantir's signature services continues to grow unfettered.
2. Palantir's growing record of profitability
It isn't just Palantir's sales that are growing. The company has a growing track record of increasing its profitability. For the second quarter, Palantir delivered record profits of $134 million, marking its seventh consecutive quarter of GAAP profitability .
This resulted in record earnings per share (EPS) of $0.06, which soared 500% year over year. On an adjusted (non-GAAP) basis, EPS of $0.09 jumped 80%. Analysts' consensus estimates were calling for adjusted EPS of $0.08, so the company cleared that bar as well.
3. Palantir's Artificial Intelligence Platform (AIP) is driving growth
In response to the accelerating demand for generative AI, Palantir created its Artificial Intelligence Platform (AIP), which provides business leaders with solutions to everyday business conundrums. Many businesses are excited about the potential productivity gains promised by AI, but they simply don't know where to begin to harvest those gains. Palantir's novel solution is hosting "bootcamps," or workshops where business leaders work side-by-side with Palantir engineers to address company-specific problems. And demand has been off the charts.
Since it began offering AIP Bootcamps in mid-2023, more than 1,025 organizations have participated, with many inking new contracts or increasing existing ones. Palantir cited multiple seven-figure deals that were signed within days of customers completing a boot camp.
4. Palantir's beat came with a raise
The "beat and raise" is one measure investors use to judge the strength of a company's results. As such, they look for the company to "beat" analysts' expectations, which Palantir has clearly done, as laid out above. However, the second half of that formula is perhaps more important, as a company will "raise" its guidance in response to a strong performance -- and Palantir did that as well.
Management increased its full-year revenue guidance to $2.75 billion at the midpoint of its guidance, or growth of 23% year over year, marking the second such increase in as many quarters.
Driving optimism was the strength of its U.S. commercial business. Palantir now expects full-year revenue for the segment of $672 million, or growth of at least 47%, up from its previous expectations of 45% growth.
5. An "unprecedented opportunity"
Digging into a company's financial results provides the most concrete evidence of its success, but investors can also gain insight into its future potential by listening carefully to what management has to say about the results and its ongoing opportunities. CEO Alex Karp provided some compelling testimony about the road ahead in the company's quarterly shareholder letter.
He noted that Palantir sees "an unprecedented opportunity" ahead, noting that in just over a year, AIP has "transformed our business." Karp went on to point out the "persistent and unbridled demand" for AIP, calling it "an effective enterprise platform" that makes AI "useful to large institutions," suggesting demand shows "no sign of relenting."
While investors might be tempted to think his comments are hyperbole, the results seem to underpin his optimism.
A word on valuation
Bears will no doubt point out that Palantir's valuation has gotten somewhat frothy, and rightfully so. As of market close on Monday, the stock was selling for 200 times earnings, which is clearly expensive. However, the price-to-earnings ratio may not be the most useful metric to use when measuring a high-growth stock. Using the more appropriate forward price/earnings-to-growth (PEG) ratio , which factors in the company's impressive growth trajectory, Palantir boasts a multiple of 0.3, when any number less than 1 is the standard for an undervalued stock.
Given the company's continued execution and the "unprecedented opportunity," I'd argue that Palantir stock is a buy .
Danny Vena has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy .
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