At this time last year, the stock price for Palantir Technologie s (NYSE: PLTR) was under $15 per share. As of mid-morning on Oct. 9, shares of Palantir were hovering around $43 -- nearly triple where they were just one year ago.
Over the last year, Palantir's software suite has garnered much attention as sophisticated data analytics platforms become a critical part of artificial intelligence (AI) roadmaps. But with shares of Palantir continuing to rise, investors need to start wondering how much longer the music is going to be playing.
Below, I'll cover a number of catalysts that could spur even further growth for Palantir while also calling out some risks the company faces.
What could cause Palantir stock to run higher?
I see three key factors that could ignite further buying of Palantir stock over the next year.
1. Institutional Coverage and Ownership: Back in September, Palantir reached a critical milestone as it was inducted into the S&P 500 . Now that Palantir is part of the exclusive index, I would not be surprised to see the company receive more attention from large financial institutions.
For example, high-profile investment banks such as JP Morgan or Wells Fargo could begin covering the stock from an equity research perspective. If more analysts from Wall Street's largest banks begin to regularly report on Palantir and its prospects, the company has a good chance to land on more investors' radar. This could be a positive catalyst for the stock as it broadens Palantir's reach to a bigger pool of investors.
Moreover, I also think that more hedge funds may begin taking positions in Palantir. Steadily rising institutional ownership in Palantir could also be a catalyst that charges more gains for the stock.
2. More Partnerships: Earlier this year, Palantir signed two notable strategic partnerships. The deal with Microsoft revolves around increasing AI investments in the defense sector , while the relationship with Oracle is going to integrate cloud-based workflows into Palantir's data analytics platform , Foundry.
I think the deals with Microsoft and Oracle bode well for Palantir's chances to continue partnering with the tech sector's largest businesses. Such relationships can help strengthen Palantir's deal flow pipeline and provide many cross-selling opportunities, ultimately serving as lucrative catalysts for the company and the stock.
3. AI in the defense sector: One area of the AI realm that I think is misunderstood is how the technology can be leveraged in military operations. Defense tech is becoming more of a priority, and it's taking many different forms. In cybersecurity, logistics, and even simulated combat operations, AI stands to be an important piece of technology for the military.
Keep in mind that nearly half of Palantir's revenue stems from government contracts with the U.S. military and its Western allies. In just the last few months, Palantir has won a number of important AI-focused deals with the Department of Defense (DOD). I suspect that as AI investments become a more mainstream feature in defense budgets, Palantir will continue to benefit from these initiatives, given the company's existing strong relationships with government agencies.
Image Source: Getty Images
What could cause Palantir stock to sell off?
The chart below illustrates Palantir's revenue and net income trajectory over the last several years. Investors can see that the company's top line is accelerating while the business has finally reached consistent profitability.
PLTR Revenue (Quarterly) data by YCharts
Candidly, I am a little wary that the AI narrative itself is not going to be enough to keep investors interested in Palantir. While the company's growth is undoubtedly impressive, there are other data analytics platforms for large enterprises on the market.
The company has a unique ability to reinvest its excess profits into areas including research and development (R&D), hiring efforts, marketing, or acquisitions.
I think Palantir is going to need to introduce additional products and services sooner rather than later; otherwise, the company's future earnings reports may run the risk of being viewed as satisfactory, but not great. In turn, investors could quickly sour on Palantir and dump the stock in exchange for something more appealing.
Palantir's valuation story tells itself
As of the time of this article, Palantir has a market capitalization of $96 billion. As much as I am a Palantir bull, I have to concede that this valuation is pricey for a company that's only done $2.5 billion in sales over the last 12 months.
PLTR Market Cap data by YCharts
At some point, I think some investors are going to begin taking profits in Palantir and I would not be surprised if such an action takes place in the near-term. While I think Palantir has numerous catalysts, all of the ideas explored above are longer-term tailwinds. For this reason, I would not be surprised to see Palantir stock witness a sell-off over the next year as the company's longer-term priorities continue to develop and take shape.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Adam Spatacco has positions in Palantir Technologies. The Motley Fool has positions in and recommends JPMorgan Chase, Oracle, and Palantir Technologies. The Motley Fool has a disclosure policy .
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