Some of the biggest gainers among artificial intelligence (AI) stocks are mega-cap giants like Microsoft And NvidiaBut smart investors know that growth can be found outside the “Magnificent Seven” stocks.
One player emerging as a rising star in the AI realm is the enterprise software developer Palantir Technologies (NYSE: PLTR)Palantir shares have risen 136% over the past year.
While a rise of that magnitude might make you feel like you missed the boat, some Wall Street analysts are calling for even more gains. Dan Ives of Wedbush Securities and Mariana Perez Mora of Bank of America Both have a $50 price target for Palantir, implying a 37% upside from current trading levels.
I analyzed several factors that could drive Palantir’s stock price to new heights and examined why this could be a lucrative opportunity to buy shares.
Do not underestimate government activities
About half of Palantir’s business comes from public sector deals with the U.S. military and defense agencies of its Western allies. While government contracts can be a reliable source of revenue, there are some caveats that make them unattractive to some investors. Namely, public sector deals tend to have bumpy sales cycles, which can make it difficult to predict revenue and cash flow.
The growth rate of Palantir’s government business has been slowing down in recent years. The slowdown in Palantir’s government business is more than evident.
|
Category |
2020 |
2021 |
2022 |
2023 |
|---|---|---|---|---|
|
Government revenue % growth year on year |
77% |
47% |
19% |
14% |
Data source: Palantir investor relations.
Still, Palantir’s $706 million in government revenue through the first six months of 2024 represents 19% year-over-year growth. I see this as the beginning of a new period of acceleration.
One thing that supports my bullish outlook is Palantir’s recent partnership with Microsoft. At a high level, the deal revolves around Microsoft’s Azure cloud computing infrastructure and Palantir’s Artificial Intelligence Platform (AIP). But more specifically, the relationship involves integrating Azure deployments of U.S. defense and intelligence agencies with Palantir’s software.
I see this as an important endorsement from Microsoft and an opportunity for Palantir to reinvigorate the growth of the government arm of its business.
Commercial matters are just starting to take off
For years, one of the biggest criticisms of Palantir was that it was overly reliant on government funding and not present enough in the private sector. But since launching AIP in April 2023, Palantir has been boosting its commercial client base.
Over the 12 months ending June 30, Palantir’s total customer base grew 41% year-over-year to 593 customers.
However, during the same period, the commercial sector grew even more dramatically – up 55% year-over-year to 467 customers. Drilling down even further, Palantir has done an incredible job of penetrating the private sector in the US in particular.
As with the government segment, I believe Palantir’s growth story in the private sector is just beginning. Earlier this year, Palantir partnered with cloud computing and enterprise software giant Oracle.
I believe Palantir will continue to form alliances with the biggest names in technology. I see these relationships as an additional source of lead generation to increase the company’s deal flow.
Can Palantir Stock Hit $50?
I see several reasons why Palantir stock could skyrocket even higher. In addition to the growth prospects that come with partnering with big tech companies, investors should consider how strong Palantir’s overall operation has become.
As revenues begin to accelerate again, Palantir is now also consistently generating positive free cash flow and net income on a generally accepted accounting principles (GAAP) basis. The company can use these profits to further invest in research and development (R&D) and new product initiatives.
As long-term investors, it is not so important to focus on a certain stock price that a company may eventually achieve. Instead, it is more important to look at the bigger picture and assess the likelihood of price appreciation.
To me, the combination of growth across the top and bottom lines makes for lucrative long-term growth prospects. Moreover, given that Palantir was just selected for inclusion in the S&P 500I wouldn’t be surprised if the company ends up on the radar of large and influential companies more often.
Ultimately, I think Palantir has even better days ahead of it and the stock has a lot more potential. Maybe $50 is the next step.
Should You Invest $1,000 in Palantir Technologies Now?
Before you buy shares in Palantir Technologies, you should consider the following:
The Motley Fool Stock Advisor team of analysts has just identified what they think is the 10 best stocks for investors to buy now… and Palantir Technologies wasn’t one of them. The 10 stocks that made the cut could deliver monster returns in the years to come.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $729,857!*
Stock Advisor offers investors an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks each month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns as of September 16, 2024
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Adam Spatacco has positions in Microsoft, Nvidia, and Palantir Technologies. The Motley Fool has positions in and recommends Bank of America, Microsoft, Nvidia, Oracle, and Palantir Technologies. The Motley Fool recommends the following options: long Jan 2026 $395 calls on Microsoft and short Jan 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
1 Unstoppable Artificial Intelligence (AI) Stocks Expected to Surge 37%, According to 2 Wall Street Analysts was originally published by The Motley Fool
