This was an excellent year for the shareholders of Palantir Technologies (NYSE:PLTR). In less than 11 months, the company’s stock price rose 162%, based on AI optimism and rising geopolitical uncertainty, which could increase demand for its unique brand of military and intelligence-focused data analytics software.
But does Palantir’s new valuation match its fundamentals? Let’s dig deeper find out if the stock is still a long-term buy.
A unique twist on software as a service
Software-as-a-service (SaaS) companies are popular with investors because when they’re done, they’re popular in the right waythe business model can generate stable recurring revenue. Their economic canals can do that too become strongR over time, as existing customers become accustomed to their workflows and become less willing to move to competing platforms.
Palantir’s SaaS business focuses on machine learning and big data analytics to help organizations process large amounts of information to discover insights and efficiencies. It combined these technologies with the major language models (LLMs) behind platforms like ChatGPT to help customers make real-time decisions.
It’s far from the only company dabbling in data analytics and generative AI, but it’s unique for its focus on government, military, and law enforcement customers, who may use their software in ways that are too politically sensitive for the typical company.
Palantir is known for helping the US government track down Osama bin Laden more than a decade ago. More recently, the country controversially contracted with Immigration and Customs Enforcement to provide profiling tools during the Trump administration, despite a media backlash.
The company is also working on the U.S. Army’s Maven targeting system program Alphabet due to its controversial nature, there might have been pressure to abandon it.
Palantir has a significant opportunity to expand its contracting business as the geopolitical situation evolves more stretched. The company already has contracts with the armed forces of Ukraine and Israel.
The business momentum remains strong
Most of Palantir’s 2024 rally can are credited to the growing geopolitical uncertainty and hype surrounding AI-related companies in general. That said, it’s also enjoyable highly operational momentum: Second-quarter revenue rose 27% year over year to $678 million, driven by demand for its data analytics software platforms.
Most of Palantir’s most recent growth is not coming from the government clients who made it famous. Now the private sector is driving expansion, especially in the US, where commercial revenues rose 55% year after year to $159 million (about 23% of the total).
That flourishing commercial activity suggests that the controversies surrounding government work do not damage its reputation and may even give it more credibility.
That said, The company’s increasing dependence on private sector growth will force it to compete with well-capitalized rivals. These include the world’s largest SaaS company, Microsoftwhich has more brand recognition and is likely to have a more advanced AI business due to its partial ownership of market leader OpenAI, the creator of ChatGPT.
Palantir’s valuation is difficult justify
A good company is not always a good investment. And that’s why potential buyers should look closely at the company’s valuation when deciding whether or not to bet on the stock.
With a forward price-earnings ratio (P/E) of 100, it sounds like a misnomer to call Palantir “priced for perfection.” It towers high above the S&P500 average 25 and even Microsoftwhich trades for a price-to-earnings ratio of 32. With this in mind, it seems unlikely that Palantir stock will continue this market-strengthening rally, and current investors may want to take profits.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Microsoft, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Up 162%, Is Palantir Stock Still a Buy? was originally published by The Motley Fool
