PLTR Stock Surges 40% in 2024: Buy or Wait?

AI, the pinnacle of technological advancement, has emerged as a premier investment avenue, revolutionizing mundane tasks and business operations alike. Akin to King Midas, its touch is rendering prosperity, as reflected in the soaring stock performance of top AI chip and software enterprises.

Palantir Technologies Inc. (PLTR) stands as a prime example, surging over 42% this year and a remarkable increase of more than 205% over the past year. The driving force behind the ascent extends beyond the prevailing currents of generative AI, encompassing factors such as stellar quarterly financial results that exceeded investor expectations.

A business' capacity to generate substantial cash autonomously is pivotal. It liberates the enterprise from reliance on debt or additional stock offerings for growth. The self-sufficiency catalyzes several expansion opportunities, fostering resilience and agility in navigating market dynamics.

Considering this, in its fiscal fourth quarter that ended December 31, 2023, PLTR disclosed an operating cash flow of $301.17 million, up 282.4% year-over-year.

Expanding this metric could empower PLTR to bolster its operational investments or even contemplate acquisitions. Sustained growth in cash flow would signal robust health for the company, enticing risk-averse investors to its stock. The trajectory could fortify PLTR's position and amplify its appeal in the market.

Additionally, PLRT's AI prowess is garnering momentum through the implementation of “bootcamps.” These initiatives empower both new and existing clientele to advance high-impact AI applications rapidly. The success of Artificial Intelligence Platform (AIP) “bootcamps” is amplifying PLTR’s potential market reach.

Having set a goal of executing 500 AIP bootcamps within a year back in October 2023, the company has already surpassed expectations by conducting 560 bootcamps involving 465 organizations. As per the company’s management, these bootcamps have significantly reduced sales cycles and accelerated customer acquisition.

In the fourth quarter of fiscal 2023, the company reported a doubling of new U.S. commercial deals exceeding $1 million compared to the year-ago value. Commercial revenue surged by 32% year-over-year to $284 million, whereas Government segment revenue increased by 11% year-over-year to $324 million.

While the Government segment remains the primary revenue driver, the Commercial segment exhibits significantly higher growth rates, underscoring robust momentum in this sector. The remarkable expansion is fueled by the success of its AI integration platform, highlighting its pivotal role in driving business growth.

In 2024, the company anticipates its U.S. commercial revenue to surpass $640 million, up roughly 40% from the previous year. CEO Alex Karp remains optimistic, citing "unrelenting" demand.

Future quarters will likely see investors closely monitoring the commercial revenue figure. Increases in this metric would signify successful conversion of bootcamp participants into clients, signaling the business' efficacy in capitalizing on its initiatives and expanding its customer base.

Additionally, to bolster international Commercial revenue growth, PLTR has forged strategic partnerships. For instance, PLTR has collaborated with Fujitsu to broaden its presence in Japan, facilitating the deployment of AIP and data integration capabilities in a new geographic market.

Moreover, the company is diversifying into healthcare, retail, and financial services sectors via strategic partnerships to broaden its market presence. For instance, PLTR has teamed up with SOMPO Care, a prominent healthcare insurer in Japan, to provide real-time data solutions to nursing homes and elder care facilities.

Also, PLTR has been active in the energy sector for over a decade, aiding clients ranging from small operators to supermajors and national oil companies in navigating challenges and seizing opportunities across the value chain. This includes activities from production to distribution, as well as supporting efforts to reduce carbon emissions.

That said, on February 8, PLTR and Bapco Upstream, a wholly-owned subsidiary of Bapco Energies, unveiled a strategic, multi-year partnership. The collaboration aims to implement PLTR’s software, facilitating and expediting Bapco Upstream’s endeavors to advance the next generation of energy in the Kingdom of Bahrain.

Another metric bound to attract long-term investors is a robust profit margin. In the fourth quarter, PLTR recorded a net income of $96.91 million, equivalent to 15.9% of its total revenue. This marks a notable enhancement from the preceding quarter, where the profit margin stood at 13.2%.

Sustained growth in PLTR's top line alongside a robust profit margin could lower its price-to-earnings ratio, rendering the stock a more appealing investment prospect in the future. The combination signifies a healthier financial position, potentially attracting more investors seeking value in the market.

Institutional investors are also evidently keen on PLTR shares, with 599 holders increasing their positions, totaling 118,615,063 shares. Additionally, 170 holders have initiated new positions, accumulating a total of 28,129,517 shares. The surge in institutional interest underscores growing confidence in the company's potential.

Bottom Line

Delving into PLTR's recent financial performance unveils various factors driving the sustained margin improvement. Notably, the expansion of the commercial sector, characterized by higher margin contracts compared to the government sector, emerges as a primary catalyst behind the margin expansion.

Furthermore, economies of scale and the company's commitment to responsible growth have significantly contributed to margin enhancement. With a growing contribution to revenue from the Commercial segment, PLTR appears poised for further margin expansion, solidifying its position for sustained growth and profitability.

Presently, commercial revenue signifies a substantial growth avenue, with businesses embracing AIP and harnessing PLTR's AI capabilities to leverage their data. Recent quarters' performance underscores this potential, positioning the company to potentially achieve record-free cash flow in 2024, possibly driving an increase in the stock price.

Bloomberg Intelligence suggests that Generative AI could burgeon into a $1.3 trillion market by 2032. This colossal growth potential, coupled with substantial demand for PLTR's offerings, rising sales, and profitability, underscores the company’s auspicious positioning for significant long-term growth.

Analysts project the company's revenue and EPS to rise by 17.2% and 52.2% year-over-year to $615.52 million and $0.08, respectively, for the fiscal first quarter ending March 2024.

However, a significant factor deterring some investors from the stock presently is its sky-high valuation. In terms of forward non-GAAP P/E, PLTR is trading at 72.16x, which is higher than the industry average of 25.03x. Similarly, its forward EV/Sales and forward EV/EBITDA multiples of 18.25x and 56.58x, respectively, are also higher than the industry averages.

Thus, given PLTR’s lofty valuations, investors may opt to wait for a better entry point into PLTR.