This company’s stock grew +177% in 2023 thanks to AI. For analysts, the long-term growth potential is enormous, but pay attention to the short-term valuation: here’s why.
On Wall Street, an artificial intelligence company is making great strides, challenging tech giants like Microsoft, Alphabet and Amazon. The new wonderchild of the NYSE is called Palantir.
This software company is experiencing impressive revenue growth and could soon be included in the S&P 500 Index.
Founded in 2003 by a group of investors including Peter Thiel – the billionaire co-founder of PayPal – the company went from a loss-making balance sheet to revenues up 17% in the last quarter.
This only partially explains the reasons to carefully monitor this big data company that collaborates with governments and intelligence agencies: this is why Palantir could soon overtake Microsoft, Alphabet, and Amazon.
Palantir Technologies is one of the most talked about tech companies in recent times. Founded in 2003 by a group of former PayPal employees, including Peter Thiel, the company has become a key pillar in the portfolio of Ark Invest’s CEO Cathie Wood. Palantir is known for its close collaboration with the US military and NATO, but its presence on the stock market has been the subject of discussion and controversy.
Since its listing on Wall Street in 2020, Palantir has attracted media and investor attention. Some believe that Palantir is subject to political power and control, even pushing for short selling of its shares.
- Palantir vs S&P 500
- Source: Fool.com
Being included in the S&P 500 Index is an important recognition for any company. However, there are rigorous criteria that a company must meet to earn this designation. These criteria include market capitalization, the volume of shares traded, time spent as a public company, and, most notably, profitability.
Regarding profitability, a company must demonstrate positive net earnings over the last four quarters. The most recent quarter is included in this calculation. Palantir recently announced positive net earnings, an important step towards inclusion in the S&P 500 index. Its financial results clearly show the company’s turnaround, which has managed to turn losses into profits.
Investors can see that over the last 12 months, Palantir generated total net income of $148 million. Palantir CEO Alex Karp said: “The speed with which our company has moved from losses to profits reflects the power and sophistication of the software platforms we have built and refined for years.”
- Palantir net income by Quarter
- Source: Palantir, letter to shareholders
Palantir has been working hard in recent months to advance the progress it is making in generative AI. In early 2023, the company launched a new product called Artificial Intelligence Platform (AIP) and claims to have seen unprecedented demand since its launch. However, some investors may have doubts as Palantir’s profits still do not appear to be in line with expectations.
For example, the company reported a 17% increase in revenue last quarter. While this represents a sequential increase from the previous quarter, and 13% year-over-year, some investors may feel this is not enough. However, a deeper look at the data reveals that Palantir was able to keep operating expenses stable during the first nine months of the year, which makes revenue growth more impressive.
Another key aspect is Palantir’s lead generation strategy. To promote AIP, Palantir hosts engaging boot camps where users can test products and understand use cases. This approach should allow Palantir to cross-sell multiple products during the same sales cycle, expanding its customer base and increasing revenue per customer. This strategy should lead to further profit increases and solid cash flow generation.
For now, Palantir’s inclusion in the S&P 500 index remains speculation. However, there are many reasons why investors should be bullish on the stock in the long term, but at the same time, it should be remembered that some analysts (including Morningstar) consider the stock to be overvalued in the short term.
Palantir’s financial profile is steadily improving on all fronts. The company generated $500 million in adjusted free cash flow in the 12 months ended Sept. 30, significantly strengthening its balance sheet. Palantir currently holds more than $3 billion in cash and cash equivalents. Furthermore, the results show that despite revenue growth being only in the mid-teens, operating income increased significantly over the year thanks to disciplined cost management.
Palantir’s future looks promising, with a strong presence in artificial intelligence and an expansion strategy based on lead generation and cross-selling. If the company were to gain inclusion in the S&P 500 index, it could attract even more attention from investors. However, as always, investors should do their research and carefully consider whether Palantir is a suitable addition to their portfolio.
In conclusion, the rise of Palantir Technologies in the field of artificial intelligence is a phenomenon that cannot be ignored. With a focused strategy and growing financial results, the company is proving to have significant potential. Whether it can overtake tech giants like Microsoft, Alphabet, and Amazon remains to be seen, but it’s certainly giving them a run for their money.
The information and considerations in this article should not be used as the sole or primary basis for making investment decisions. The reader retains full freedom in his own investment choices and full responsibility in making them since he alone knows his risk propensity and his time horizon. The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation to the public for savings.
Original article published on Money.it Italy 2023-11-11 16:11:00. Original title: Questo titolo tecnologico potrebbe presto superare Microsoft, Alphabet e Amazon