Shares of Palantir Technologies (PLTR), an enterprise software company, continue to rise in 2024. PLTR stock has skyrocketed 103% since the beginning of the year, easily outperforming the S&P 500 Index ($SPX)’s gain of about 16.7%.
In fact, Palantir’s value has increased by nearly 124% in the past year and an incredible 335% in two years, making the stock one of the best-performing large-cap companies on the market.
Palantir’s rise is largely due to booming demand for its artificial intelligence platform (AIP). The company is seeing a surge in enthusiasm among U.S. business customers, many of whom are using its AI tools to improve their operations. This growing interest is expanding Palantir’s customer base and opening up new opportunities in the rapidly evolving enterprise AI market.
PLTR stock received an additional boost this week with news of its impending inclusion in the S&P 500. This inclusion increased the company’s credibility and attracted the attention of more investors.
Palantir’s membership in the S&P 500 reflects confidence and solid demand for AIP and suggests that Palantir represents an opportunity for investors to gain exposure to the fast-growing enterprise AI sector. However, the stock’s incredible run has also made it quite expensive in terms of valuation. With the valuation now high, the room for further upside may be limited in the near term.
So should investors consider buying Palantir now or is it better to wait for a price drop before investing? Let’s take a closer look.
Palantir’s strong business momentum
Palantir’s business is thriving. In the second quarter of 2024, the company reported revenue of $678 million, up 27% from the same period last year. Revenue growth has steadily accelerated in recent quarters, driven by the increasing adoption of AI in the enterprise software market.
AIP has resulted in several large contracts, including 27 deals valued at $10 million or more and a total contract value (TCV) of nearly $1 billion in the second quarter alone. A significant portion of these deals came from existing customers who expanded their use of Palantir’s solutions, demonstrating strong customer loyalty. The company’s top 20 customers generate an average of $57 million per year, a 9% increase year over year.
The U.S. commercial sector is a key growth area for Palantir. In the second quarter of 2024, U.S. commercial revenue (excluding strategic contracts) increased 70% compared to the same period last year. The company’s U.S. annual contract value (ACV) also grew strongly, increasing 44% year-over-year and 19% sequentially. Palantir continues to win new contracts and expand its relationships with existing contracts, particularly in high-value production use cases, all of which provide a solid foundation for future growth.
Financial strength and future prospects
Palantir’s financial position remains solid. The total value of remaining businesses is $4.3 billion, up 26 percent from the previous year. Remaining performance obligations, essentially future revenue obligations, increased 41 percent to $1.4 billion.
Palantir’s net dollar retention rate was 114%, up 300 basis points, underscoring the company’s ability to generate higher revenue from its existing customers.
Looking ahead, Palantir’s focus on AI and the enormous potential of the AI-driven enterprise market offers significant growth opportunities. With strong operating metrics and a growing customer base, Palantir is well positioned to capitalize on this booming sector.
Should you buy PLTR shares now?
Palantir has shown impressive growth and has strong future potential, making it an interesting stock to invest in. However, its current high valuation is a cause for concern. While Palantir’s growth prospects suggest the company deserves a premium, the stock trades at a price-to-sales (P/S) ratio of 34.99 – well above the industry average of 2.76. This high valuation is a key reason why many analysts remain cautious on the stock, giving Palantir a consensus rating of Hold.
Wall Street’s average price target for PLTR is $24.44, suggesting a potential downside of about 30% from current levels.
The consensus recommendation of “Hold” and the massive increase in the share price indicate that the positive aspects are priced into PLTR, so there is little room for further upside in the short term.
For long-term investors who are willing to ride the AI wave and believe Palantir can be a leader in this space, buying shares on a dip could be a strategy worth considering.
On the date of publication, Amit Singh did not have any positions (directly or indirectly) in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information, please see Barchart’s disclosure policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
