The enthusiasm for artificial intelligence (AI) is driving markets to new heights. Both S&P 500 And Nasdaq Composite have already set new records in the first few months of the year.
Much of this growth is thanks to the “Magnificent Seven” – a catchy nickname used to describe the world’s largest companies Microsoft, Apple, Nvidia, alphabet, Amazon, TeslaAnd Metaplatforms. But smart investors know that there are many other opportunities in the AI space besides megacap technology.
One company that is emerging as a leader is the big data analytics software company Palantir Technologies (NYSE:PLTR). 2023 was a breakthrough year for the company as it released its fourth major product: the Palantir Artificial Intelligence Platform (AIP).
AIP’s overwhelming success helped boost Palantir’s sales and profits – and investors took notice. But is it too late to buy the company’s shares, with shares up nearly 180% in the last year?
Wedbush Securities analyst Dan Ives believes the stock still has plenty of room for growth. His price target of $35 per share implies an upside of approximately 59% from the company’s current trading levels as of the April 10 close.
Read on to find out why acquiring Palantir stock right now could be a lucrative opportunity.
The rise of the Palantir artificial intelligence platform
For many years, Palantir sold three core software products: Apollo, Gotham and Foundry. But last April, following the release of AIP, the company quietly announced its foray into artificial intelligence (AI). But AIP’s launch was largely overshadowed by moves by big tech companies – including investments in ChatGPT developer OpenAI and its competitors.
To get the word out about AIP, Palantir used a creative lead generation strategy. The company began hosting immersive seminars called “bootcamps.” During these sessions, potential customers were able to demonstrate Palantir’s various software platforms. The idea was to tangibly demonstrate Palantir’s technical capabilities while helping business leaders identify and develop a use case around artificial intelligence (AI).
Since this campaign began, Palantir has hosted over 850 bootcamps. In addition, AIP customers have publicly demonstrated how the product is used to gain new insights in countless applications.
Although AIP has only been commercially available for about a year, initial results are encouraging. Palantir grew its customer count by 35% in 2023 compared to the previous year and is making headway in the private sector. In the fourth quarter alone, the company increased its commercial sales in the US by a whopping 70%.
The journey is just beginning
Of course, it’s always nice to increase sales. This is particularly significant for Palantir because the company has faced some resistance over the years from Wall Street skeptics – many of whom believe the company relies too heavily on heavy-handed government deals with the U.S. military and its Western allies is.
However, AIP proves that Palantir has legitimate technical capabilities that attract customers from a range of industries outside of the public sector. Given the momentum of large technology companies across the AI landscape, Palantir is proving it can compete with the largest companies.
I see 2023 as the first chapter in a long history of the company’s AI story. Things are moving quickly and other tech industry giants are eager to work with Palantir AIP. The company is well positioned to continue delivering robust revenue growth while maintaining a healthy profitability profile and a strong balance sheet.
A first-class review that is well worth the price
The chart below shows Palantir compared to a cohort of other leading AI software-as-a-service (SaaS) companies on a price-to-sales (P/S) basis. Based on this metric, Palantir is the most expensive stock in this peer group with a P/E ratio of 23.1.
Palantir’s valuation metrics rose dramatically following its stunning fourth-quarter earnings report in February. The stock has seen some momentum since then and is only now starting to take a breather.
What’s more, it’s not just revenue growth that’s impressive for Palantir. The company’s overall financial picture is strong. The success of the boot camps has allowed Palantir to keep sales and marketing expenses relatively low. Therefore, the company is consistently profitable – in contrast to many of its competitors.
In 2023, Palantir increased its operating margin by 6%. This fell directly to the bottom line, as the company generated free cash flow of $730 million in 2023 – more than triple year-over-year.
With stocks trading at such a premium compared to the competition, investors may be tempted to sell and lock in some of the profits. But I would encourage investors to look outside and look at the bigger picture.
While AIP acted as a catalyst for Palantir’s business and played an influential role in the excitement that drove the stock higher, the company’s shares are still 40% below their all-time high. Now is a great time to pick up shares as Palantir continues to benefit from the long-term, secular themes of AI.
Using dollar-cost averaging is a prudent strategy for opening a position or adding to an existing one. With so much upside potential, it’s hard to look at Palantir.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions at Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Palantir Technologies and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Datadog, Meta Platforms, Microsoft, MongoDB, Nvidia, Oracle, Palantir Technologies, Salesforce, ServiceNow, Snowflake, and Tesla. The Motley Fool recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has a disclosure policy.
A Unique Investment Opportunity: 1 Top Artificial Intelligence (AI) Stock to Buy Now in April Before It Surges 55%, According to 1 Wall Street Analyst was originally published by The Motley Fool