Day: September 14, 2024

Palantir (NYSE: PLTR) has emerged as one of the stock market’s artificial intelligence (AI) darlings.

The tech company is known for its complex data analytics platforms. It got its start in the aftermath of 9/11 by providing software to federal intelligence agencies that helped them sift through mountains of data and make connections that could help them prevent further terrorist attacks.

Today, it’s considered a leader in AI software with the Palantir Artificial Intelligence Platform (AIP), which allows users to build AI apps to expedite workflows or to assist with processes like inventory management or procurement.

Palantir stock is up by more than 400% since the start of 2023, making it one of the top-performing AI stocks since the launch of ChatGPT. That bull run was recently capped off by news that the company would be added to the S&P 500.

In the wake of the stock’s surge, investors might be wondering if it’s too late to buy Palantir. Could the AI company still deliver returns from here that could make you a millionaire?

The Palantir growth story

Some AI stocks such as Nvidia have put up blockbuster growth, but Palantir’s emergence has been slower. The company was founded in 2003 and went public in 2020. It’s on track to earn $2.75 billion in revenue this year.

In the second quarter, its revenue grew 27% to $678.1 million, and the company is now highly profitable, with an adjusted operating margin of 37% in the quarter, or a 16% margin on a generally accepted accounting principles (GAAP) basis. Profits have surged because the company’s business model is highly scalable — its operating expenses rose just 7% in the quarter.

Historically, Palantir’s business has largely come from federal government contracts, but it is diversifying its customer base with strong growth in the commercial division. In the second quarter, its commercial revenue jumped by 33% to $307 million — 45% of Palantir’s total revenue — and its commercial customer count jumped by 83% to 295.

Overall, its recent results have been virtually flawless, with steady growth, growing profitability, improved guidance, and a diversifying customer base. Palantir’s performance is especially impressive in an environment where software stocks have struggled, and a large number are trading well below their pandemic-era peaks.

CEO Alex Karp characterized the company’s growth as “driven by an unrelenting wave of demand from customers for artificial intelligence systems that go beyond the merely performative and academic.”

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Can Palantir make you a millionaire?

Palantir’s share price growth from the all-time low it hit in late December 2022 has already helped some investors take significant steps toward millionaire status. While the business is firing on all cylinders, there are some legitimate concerns about its valuation.

Currently, the stock trades at a price-to-sales ratio of 82.6 and a trailing price-to-earnings ratio of 205, though considering its growth expectations, that ratio should come down reasonably quickly.

Other AI stocks like Nvidia seem to have plateaued for now as investors are concerned that cloud infrastructure companies are overspending on AI and that stock prices have gotten ahead of the growth in the underlying businesses.

As a software company, Palantir doesn’t really face that concern. Demand for its products is separate from the rest of the generative AI sector, but slowing growth could spark similar concerns. Palantir is at risk of being affected by headwinds in the broader economy, as its customers and potential customers could pull back on spending on a new technology.

Palantir also now has a market cap near $80 billion, so multibagger growth will be more difficult from here, but the company’s competitive advantages should ensure its continued growth.

If you’re looking for AI stocks or growth stocks to drive your portfolio toward $1 million, then investing in Palantir makes sense. However, making that position part of a portfolio diversified with other AI stocks seems like a better course of action. Additionally, buying Palantir opportunistically if it pulls back could deliver handsome rewards.

Overall, based on its recent results and the stock’s performance, Palantir has earned a place in any AI-focused growth stock portfolio.

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The Chinese electric vehicle (EV) market has grown rapidly, becoming the largest in the world. However, this growth has led to fierce competition, which has pressured margins and stock prices of major players. In this article, using the TipRanks Stock Comparison tool, I’ll explain why I rate Li Auto (LI) as a Buy and view it as a better investment than Nio (NIO) and XPeng (XPEV), which I rate Hold and Sell, respectively.

Nio (NIO)

My Hold rating on Nio stems from the company’s consistent quarterly losses, driven by intense competition in the EV sector. As a prominent player in the premium Chinese EV market, Nio is recognized for its high-end electric SUVs and innovative battery-swapping system. However, Nio holds just 2.1% of the domestic market share in China. This limited market presence may hinder the company’s path to sustained profitability and effective scaling.

For Q2 2024, Nio reported an adjusted net loss of RMB 4.535 billion (around $624.1 million). This was a 16.7% decrease from the previous year. Recent delivery data is more encouraging. From January to August of this year, Nio delivered 128,100 vehicles, representing a 35.8% yearly increase. This performance helped regain investor confidence, as evidenced by a prolonged rally in the company’s shares, which rose over 14% following the Q2 results.

NIO’s Valuation, Momentum, and Wall Street Consensus

Nio’s valuation shows a price-to-sales (P/S) ratio of nearly 1.2x, above the industry average, but suggests some de-risking. However, this does not necessarily indicate a Buy signal. The primary concern is the price-to-book (P/B) ratio of 5.1x, which is much higher than its Chinese peers, given its asset base.

In terms of momentum, the stock has surged nearly 50% since late August of this year. Nonetheless, technical indicators, such as an RSI of 76.27, suggest that the stock might be overbought. Despite this, Nio’s share price remains above both the short-term and long-term moving averages, which signals a continued bullish trend.

Additionally, Wall Street’s consensus on NIO is a Moderate Buy, with six of eleven analysts bullish, four neutral, and one bearish. The average price target is $5.97, implying potential upside of 8.84%.

Li Auto (LI)

I am most bullish on Li Auto due to the company’s superior margins compared to other Chinese EV manufacturers. Li Auto stands out in the Chinese EV market for its extended-range vehicles that combine electric power with a small gasoline engine.

In its most recent quarter (Q2 2024), Li Auto achieved a vehicle margin of 18.7%. Although this represents a decline from 21% in the same quarter of 2023, it remains the highest margin among its peers. For comparison, Nio reported a vehicle margin of 12.2%, while XPeng had a margin of 6.4% in its most recent quarter.

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Despite the drop in margins—reflecting the competitive nature of the EV market—Li Auto remained profitable in Q2, reporting gross profits at RMB 6.2 billion (approximately $850 million), a 16.9% increase compared to Q1. This performance positions Li Auto as one of the lower-risk investment options within its segment.

LI’s Valuation, Momentum, and Wall Street Consensus

Another factor in my bullish outlook on Li Auto is its valuation. Despite its profitability and strong margins, Li Auto is one of the most attractively valued EV companies in its sector. It trades at a P/S ratio of 1.1x. Additionally, its P/B ratio is 2.3x, which is less than half of Nio’s but higher than XPeng’s.

Regarding technical indicators, with the share price being down 53% over the past twelve months, Li Auto’s stock trades below its 100-day moving average, which is $21.28. This suggests that the stock might be in a recovery phase or attempting to stabilize after a prolonged bearish period.

Moreover, Wall Street’s consensus is largely bullish, with a Moderate Buy rating. Six out of nine analysts recommend a buy, and the average price target is $26.82, suggesting upside potential of 38.14%.

XPeng (XPEV)

Lastly, I remain bearish on XPeng stock due to its persistent execution issues and poor margins, making it the least favorable of the trio. XPeng is known for its focus on smart, connected, and affordable EVs, emphasizing technology and innovation in autonomous driving.

XPeng significantly lags behind Nio and Li Auto in vehicle margins at 6.4% and faces a bleak Q3 delivery outlook, with only 12.5% year-over-year growth projected. Much of this growth depends on the sales of its new Mona M03, priced from less than $17,000. Although the company has already received over 10,000 non-refundable orders for the vehicle, there is uncertainty about whether it can meet its delivery numbers each month. Additionally, profitability remains in question if actual deliveries fall short of expectations.

XPEV’s Valuation, Momentum, and Wall Street Consensus

Contributing to my bearish outlook, I find it perplexing that XPeng, despite having lower vehicle margins compared to its peers, trades at a P/S ratio of 1.6x—higher than both Nio and Li Auto. While its P/B ratio of 1.7x is lower than its peers, this may reflect concerns about the company’s financial health. With $5.14 billion in cash and equivalents and other near-cash assets (ended June 30, 2024), XPeng could face financial strain, as analysts do not expect profitability until at least 2026.

On the positive side, XPeng’s stock trades below its 200-day moving average but above shorter-term averages. This suggests short-term bullish momentum within a broader bearish trend, possibly signaling market indecision.

Contrary to my pessimistic view, analysts’ consensus is bullish on XPeng’s stock. It holds a “Moderate Buy” rating, with seven out of ten analysts recommending a Buy. The average price target is $11.55, suggesting potential upside of 26.51%.

Conclusion: LI Auto Is My Top Pick

Investing in Chinese EV stocks has been risky, with several headwinds driving industry-wide selloffs. Among the players, I view Li Auto stock as the least risky and rate it a Buy, thanks to its reasonable valuation and strong margins. In contrast, Nio’s profitability challenges warrant a cautious outlook, while XPeng’s low margins support a bearish stance.

Disclosure

Suze Orman, the personal finance expert and podcaster, has a message for investors: buy more Bitcoin. Her stance puts her at odds with many of her peers in the financial advisory world.

“Everybody should absolutely have exposure to Bitcoin,” Orman said in a recent CNBC interview. But she was quick to add a caveat: “Put as much money in there as you’re OK losing.”

Orman’s endorsement comes as Bitcoin’s value has more than doubled in the past year to $57,756. The cryptocurrency’s price surge has reignited debates about its role in investment portfolios.

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Unlike some Bitcoin proponents, Orman doesn’t see it as a hedge against inflation or a replacement for traditional currency. Instead, she’s betting on its appeal to younger investors.

“As younger people make more money and mature, Bitcoin will be one of their investments of choice,” Orman said. Her view aligns with CNBC’s recent data showing that millennials and Gen Z account for 70% of cryptocurrency ownership.

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Orman’s stance contradicts the opinions of well-known financial figures. Perhaps most notably, Berkshire Hathaway CEO Warren Buffett dismissed Bitcoin, saying he wouldn’t pay $25 for the entire world supply. Another well-known financial advisor, Dave Ramsey, compared cryptocurrency investment to speculating on unstable currencies.

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Despite the endorsement, Orman remains cautious. She prefers investing in Bitcoin through exchange-traded funds (ETFs) – approved by the SEC earlier this year – rather than owning it directly. The approach, she says, offers more security and simplicity.

“I feel better owning an ETF because I would never want to see an FTX happen again,” Orman said, referring to the high-profile collapse of the crypto exchange.

Orman’s advice comes with clear warnings. She views Bitcoin as speculative, telling investors to be prepared for volatility. “This is an investment that you’re either going to lose it all, or you’re going to let it run until it’s worth $100,000 or $200,000,” she said.

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Financial experts often suggest limiting high-risk assets to no more than 5% of an investment portfolio. Orman’s approach aligns with the conservative stance of investing only in what one can afford to lose.

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As cryptocurrencies continue to gain mainstream attention, Orman’s perspective offers a middle ground between outright rejection and unchecked enthusiasm.

“Because the younger generation has a fascination with it – and you see the energy – a whole lot of people [have] interest in it. Eventually, it could very well catch fire,” she said to CNBC.

Her nuanced stance reflects the landscape facing today’s investors as they navigate the potential risks and rewards of digital assets.

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