Palantir Technologies (NYSE:PLTR) The stock is in great form in 2024 with blistering 198% gains at the time of writing, and it looks like the red-hot run will continue after an impressive set of Q3 2024 results released on November 1 published. 4.
The company, known for providing software platforms to both commercial and government customers, posted better-than-expected revenue and profit in the third quarter. The guidance was well above what analysts expected, and investors pushed the stock up 23% the day after quarterly results were announced.
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Let’s take a closer look at how Palantir fared in the third quarter, and determine whether this high-flying tech stock has enough gas in the tank to continue rising in 2025.
Palantir reported third-quarter revenue of $726 million, up 30% from the same period last year. Adjusted earnings grew at an even faster pace of 43% to $0.10 per share. Both figures exceeded analyst expectations of $0.09 per share in profit on revenue of $703.4 million.
What’s worth noting here is that Palantir reported relatively slower revenue growth of 17% in the same period last year.
Furthermore, Palantir’s revenue growth in Q2 2024 was 27% year-over-year, so there has been a clear acceleration in Palantir’s growth, and artificial intelligence (AI) is a major reason for that. Management made it clear during the latest earnings conference call that growing demand for AI software has been playing a central role in driving the company’s improved growth of late.
That’s not surprising, as Palantir’s Artificial Intelligence Platform (AIP) allows customers to customize and implement AI models into their operations, helping them improve the efficiency of their business. Palantir’s AIP has gained tremendous traction among customers, leading to healthy growth in the company’s customer base and the size of the deals it signs.
Palantir ended the third quarter with 629 customers, an increase of 39% compared to the same period last year. One important thing to note is that the company secured 104 deals worth at least $1 million last quarter, compared to 80 in the same period last year.
Meanwhile, the number of deals worth $5 million or more increased to 36 from 29 a year ago. Deals worth $10 million or more rose from 12 to 16 year-over-year. Thanks to the improvement of Palantir’s customer base and increase in deal values, the company’s remaining performance obligations (RPOs) increased by a solid 58% to $1.57 billion.
The faster growth in this metric compared to Palantir’s revenue growth bodes well for the future. That’s because the RPO refers to the total future value of a company’s contracts that have yet to be fulfilled. Investors should note that Palantir’s RPO consists primarily of commercial contracts.
To measure the true potential of the company’s revenue pipeline, we need to look at residual deal value (RDV), a metric that for Palantir takes into account the “total remaining value of contracts as of the end of the reporting period,” including government . contracts. Palantir reported a 22% year-over-year increase in RDV last quarter to $4.5 billion, indicating the company’s ability to maintain its healthy long-term growth thanks to a solid contract pipeline.
This is why Palantir has increased its 2024 revenue forecast to just over $2.8 billion, up from its previous guidance of around $2.75 billion. The updated guidance would translate into year-over-year growth of nearly 26%, which would be an improvement over 2023 revenue growth of 17%.
So it’s clear that Palantir is indeed benefiting from the growing need for AI software applications in both commercial and government companies, but there is one factor that could weigh on its stock price in 2025.
Palantir’s remarkable rise through 2024 means the stock trades at a very expensive 46 times sales, which is significantly higher than the US tech sector average of 7.7. The company’s value for moneyincome a multiple of 255 further reinforces the fact that Palantir is a richly valued stock.
The forward earnings ratio (based on estimates) of 124 is significantly lower than the previous multiple and points towards a sharp increase in the company’s earnings, but is still on the higher side compared to the average tech sector earnings multiple of almost 49. .
The valuation indicates that Palantir is expected to continue to deliver excellent growth. And it could continue to achieve faster growth thanks to the booming market for AI software platforms, a market that is expected to experience 40% annual growth through 2028 and generate annual revenues of $153 billion by the end of the forecast period.
Another reason Palantir’s rich valuation could be justified is that it is reportedly the top-ranked vendor in AI software platforms. This is likely why the company benefits from robust unit economics, meaning each customer’s revenue grows faster than its costs.
Palantir’s operating margin rose by as much as 9 percentage points year-over-year to 38% in the third quarter. Consensus estimates predict that Palantir’s earnings will grow at an impressive annual rate of 59% over the next five years, and the forward price-to-earnings-growth (PEG) ratio of 0.42 suggests the company is undervalued on growth . that it is expected to deliver.
Investors looking to buy a growth stock that benefits from AI adoption may want to look past the company’s trailing multiples, as the market could reward its excellent earnings growth with more upside potential in 2025 and beyond. I think it could continue to crush the market into the new year.
Consider the following before purchasing shares in Palantir Technologies:
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
Palantir Technologies: Can This Supercharged Artificial Intelligence (AI) Stock Continue to Crush the Stock Market in 2025? was originally published by The Motley Fool
