Stocks of artificial intelligence (AI) software are in play Palantir (NYSE:PLTR) rose 10.8% this week through noon ET Thursday, according to data from S&P Global Market Intelligence.
While there wasn’t much financial news for Palantir this week, the company did announce two contract wins. These wins seemed to justify an upbeat call from Wall Street analysts for Palantir, published Monday.
Argus initiates when buying
Palantir certainly got off to a good start this week. On Monday, analyst Joseph Bonner of sell-side research firm Argus Research initiated coverage on the stock with a buy rating.
While Bonner acknowledges that shares are trading at a hefty premium, he believes in Palantir’s differentiation and product improvement thanks to Palantir incorporating more layers of artificial intelligence into its software. And while the company’s past has been dominated by high-profile government customers like the Department of Defense and the CIA, Bonner sees the fast-growing commercial segment as key to his buying call.
That seems to make a lot of sense, considering the company’s commercial revenues grew 27% last quarter, compared to 16% growth in government revenues. Palantir’s U.S. commercial revenues rose another more than 40%.
Total commercial revenues nearly overtook Palantir’s government revenues, with $299 million and $335 million, respectively, last quarter. But with the commercial segment poised to soon overtake the government segment, Bonner’s contention that Palantir will become more of a commercial story seems to carry weight.
On that note, Palantir actually announced two contracts this week, one commercial and one government-oriented. On Thursday, Palantir announced that Starlab Space, a US-led joint venture between several international space exploration companies, had named Palantir as a commercial partner. According to the release, Starlab will use Palantir’s technology to “optimize resource allocation, mission planning and overall system performance, reduce operational costs and streamline onboard operations for Starlab crews.”
Also Thursday, Palantir announced that it had been selected by the Advanced Research Projects Agency for Health (ARPA-H), a unit within the Department of Health and Human Services, to help the agency conduct big data-driven research. This is an exciting new contract as the ARPA-H engages in groundbreaking biomedical and health research that cannot easily be done by for-profit commercial enterprises.
Palantir is a changemaker, but are shares expensive?
Palantir has done a great job of leveraging AI and expanding its commercial customer base, while also dramatically improving profitability. However, the shares now trade at as much as 215 times trailing earnings and as much as 78 times next year’s earnings forecast.
At that valuation, investors are already pricing in a lot of good news, expecting the company to maintain or even accelerate its growth rate for many years to come. That’s difficult for a company as it gets bigger. And while Palantir is proving to be a great player and a company that makes a difference, investors should be prepared for a potential pullback in this expensive stock at any hint of disappointment.
Should You Invest $1,000 in Palantir Technologies Now?
Consider the following before purchasing shares in Palantir Technologies:
The Motley Fool stock advisor The analyst team 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 ten stocks that survived the cut could deliver monster returns in the coming years.
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 $830,777!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns June 10, 2024
Billy Duberstein and/or his clients have no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
Why Palantir Rallied This Week was originally published by The Motley Fool
