Few companies have reacted more to Trump’s victory in the presidential election than Palantir Technologies(NYSE:PLTR)a data analytics and artificial intelligence (AI) company with a strong focus on defense and law enforcement. The company has added billions to its market cap, with shares up as much as 50% since the election.
But is Palantir’s recent rally based on hype and excitement or sustainable economic fundamentals? Let’s take a deeper look at what the next twelve months may have in store for this unique technology leader.
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Founded in 2003, Palantir is arguably an early AI company. Are software-as-a-service platforms are designed to extract insights from large amounts of raw data to help organizations notice patterns, improve efficiency, and generate growth. The implementation of the great language model (LLM) technology behind algorithms like ChatGPT accelerates these tasks and delivers real-time insights.
This is a hugely competitive industry, with cloud computing giants like Microsoft, SnowflakeAnd Amazon offer similar services. However, Palantir is trying to differentiate itself with a focus on customized solutions that can emphasize safety.
The company offers are services through three core platforms: Gotham, Foundry and the Artificial Intelligence Platform (AIP). Gotham helps government clients with decision-making, intelligence gathering and military targeting. Foundry specializes in finding business efficiencies and trends for enterprise clients, while Palantir’s AIP helps all types of organizations create and deploy AI applications.
If stock price trends are anything to go by, Trump’s victory in the presidential election has increased optimism about Palantir’s stock. While stock movements don’t always have a tangible reason behind them, this trend may have something to do with Palantir’s role in the previous Trump administration when it helped Immigration and Customs Enforcement (ICE) track down and deport undocumented immigrants .
The tailor-made data analytics solution called Falcon (which one Palantir made for ICE) uses data collected from government surveillance networks and public records to help agents plan future raids and operations. Although the instruments received a lot of negative publicity from the media and activists, Palantir did not back down, retaining the contract and positioning it for future controversial deals.
Image source: Getty Images.
That said, the Falcon contract only generated $127 million between 2013 and 2022, which isn’t a game-changing amount for Palantir. Additionally, Business Insider reports that the company could lose the contract if ICE moves to other service providers. Investors should look at Palantir’s overall financial position rather than focusing on this relatively small and uncertain revenue stream.
Palantir’s revenue grew 44% in the third quarter year after year to $499 million. And while government customers still account for 64% of revenue, commercial business is growing rapidly, up 54% to $179 million during the period. It seems like it Corporate customers are not deterred by Palantir’s controversial government work. And it can also hold its own in highly competitive generative AI and data analytics capabilities.
That said, a great company isn’t always that way a great one invest if its valuation is not in line with its fundamental characteristics. And with one forward price-earnings ratio (P/E) multiple of 143 at the time of writing this article, Palantir stock is overpriced, even given its healthy growth rate.
For context: the S&P500 has a projected estimate of around 25. And a leader in the AI industry Nvidia has a forward price-to-earnings ratio of just 36, despite significantly faster revenue growth of 122% in the third quarter. With this in mind, Palantir appears poised for a significant correction over the next twelve months. And potential investors should be careful.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, 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 Amazon, Microsoft, Nvidia, Palantir Technologies, and Snowflake. 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.
Where Will Palantir Stock Be in 1 Year? was originally published by The Motley Fool
