It’s been over a year since the AI revolution took hold with the launch of ChatGPT, and Palantir (NYSE: PLTR) has emerged as one of the winners.
The data analytics company, known for helping large government agencies and corporations sort through large amounts of data, saw its stock surge 167% last year as it turned profitable and launched its new Artificial Intelligence Platform (AIP).
Investors were cheering its fourth-quarter earnings report on Monday as the company delivered a strong round of results.
Palantir reported 20% revenue growth to $608.4 million, ahead of the consensus at $602.4 million. Once again, the company delivered strong profitability with its fifth straight quarter of profitability according to generally accepted accounting principles (GAAP), coming in at $93 million, or a 15% profit margin.
The company experienced particularly strong growth in its U.S. commercial segment, where revenue was up 70% to $131 million, making up nearly a quarter of total sales. U.S. commercial total contract value jumped 107% to $343 million, and for 2024, it forecast 40% growth in U.S. commercial revenue to at least $640 million, showing that companies are starting to adopt AIP.
On the bottom line, adjusted earnings per share doubled to $0.08, beating analyst estimates, as the company nearly held operating expenses flat once again, and guidance was solid as well.
For 2024, management expects revenue of roughly $2.65 billion, which represents 19% growth, an acceleration from 17% in 2023. It also called for adjusted income from operations of $834 million to $850 million, or a margin of 32%.
Palantir’s momentum is building
On the earnings call, management had no shortage of enthusiasm for the business and the demand it’s seeing from artificial intelligence (AI).
CEO Alex Karp explained in his shareholder letter that the power of large language models and natural language processing is rendered virtually useless without a system “to interact with an organization’s underlying and proprietary data, which is often scattered across hundreds if not thousands of disparate repositories.” Karp added, “AIP is that connective tissue, and the organic and unrestrained demand for its capabilities is unlike anything we have seen in two decades.”
Karp also called AIP the company’s fourth platform, alongside Gotham, Foundry, and Apollo: “AIP is the future of our company, and we believe that it will become the dominant platform for the entire industry.”
On the earnings call, management touted the company’s attractiveness to potential employees, saying it had never seen as much talent come to it looking for jobs.
Is Palantir stock a buy?
Palantir isn’t seeing the kind of breakout growth that Nvidia has experienced, having thus far taken most of the spoils in the AI boom, but the two companies provide different services.
Semiconductor stocks like Nvidia’s are cyclical, and its current boom is reflective of skyrocketing demand for its processors. Palantir, on the other hand, is a cloud software stock, and revenue tends to be more stable in that industry as customers sign multiyear contracts, rather than buying the product once for a particular project.
That, and the company’s strength with the U.S. government, makes it unlikely that revenue is going to suddenly accelerate. But investors should be encouraged by Palantir’s expanding margin, which is coming after years of losses, and its strength in the U.S. commercial segment should also provide support.
Palantir stock trades at a forward price-to-earnings ratio of 70, which seems like a reasonable price to pay for a stock that’s emerging as a leader in AI software, and its AIP could drive its revenue higher over the next several years.
Demand for AI services and capabilities is just starting to boom, and Palantir should continue to be a winner.
Should you invest $1,000 in Palantir Technologies right now?
Before you buy stock in Palantir Technologies, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are 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 produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
See the 10 stocks
*Stock Advisor returns as of February 5, 2024
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.
Palantir Stock Is Soaring. Is It a Top AI Stock to Buy Now? was originally published by The Motley Fool