Palantir Technologies Just Took Wall Street to School. 1 Analyst Predicted the Outcome.

There was a lot of ink spilled in the weeks leading up to Palantir Technologies’ (NYSE: PLTR) financial release, and much of it was decidedly negative. The stock has been on an epic run over the past couple of years, gaining 545% since early last year, thanks to the accelerating adoption of artificial intelligence (AI). This has been accompanied by a commensurate increase in Palantir’s valuation, with some on Wall Street sounding the alarm.

The company released its results after the market close on Nov. 4, and to say Palantir sailed past expectations might be an understatement. The data mining and AI specialist eclipsed even the high end of analysts’ expectations and punctuated its blockbuster report by raising guidance for the full year.

Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »

While many on Wall Street were stunned by the breadth of Palantir’s performance, one analyst predicted that many were underestimating the company’s strength.

Let’s take a look at Palantir’s results and what it means for the future.

Developers looking at lines of AI code on a computer screen. — Image source: Getty Images.

For the third quarter, Palantir generated revenue of $726 million, up 30% year over year and 7% quarter over quarter. This resulted in adjusted earnings per share (EPS) of $0.10, which climbed 43%. To put results in the context of expectations, analysts’ consensus estimates were calling for revenue of $701 million and EPS of $0.09, so Palantir easily cleared both hurdles.

The results were fueled by U.S. commercial revenue, which jumped 54% year over year and 13% sequentially — well ahead of management’s guidance for at least 47% growth. U.S. government revenue did its part, climbing 40%.

Customer metrics were equally robust. Palantir’s customer count grew 39% year over year, driven by a 77% increase in U.S. commercial customers. The company also fueled future growth, closing 104 deals worth at least $1 million. Of those, 36 were worth at least $5 million, and 16 were worth at least $10 million.

Not only was Palantir driving robust current growth, but it also laid the foundation for a profitable future. The company’s remaining performance obligation (RPO) — or sales not yet booked as revenue — climbed 59% year over year to $1.6 billion. It’s good news when RPO is growing faster than current revenue, as this suggests the company’s growth spurt has legs.

Palantir’s secret weapon has been its Artificial Intelligence Platform (AIP), which has experienced robust customer demand. The company has taken a unique approach, hosting boot camps that pair users with Palantir’s engineers to ensure they develop viable solutions. The evidence is undeniable. Management noted numerous seven-figure deals that were signed within weeks of those customers attending one of Palatir’s boot camp sessions.

To put the icing on the cake, Palantir management raised the company’s full-year revenue guidance to $2.8 billion, which would represent year-over-year growth of 26% after several successive quarters of accelerating growth. Palantir also increased its adjusted profit and free cash flow projections. The biggest contributor to its more bullish outlook is the U.S. commercial segment, as management is now forecasting growth of 50%, up from management’s forecast for 40% growth issued earlier this year.

Wedbush analyst Dan Ives wasn’t a bit surprised by the outcome. In September, the longtime Palantir bull noted that “incrementally more enterprises” were discussing how they would deploy AIP in 2025. Ives said at the time that Palantir’s “enterprise-driven AIP strategy [was] a clear ‘game changer’ for the Palantir story,” warranting an outperform (buy) rating and a $45 price target. The call came as some analysts were moving to the sidelines, citing Palantir’s lofty valuation.

In the wake of Palantir’s blowout performance, which Ives called “a masterpiece,” the analyst has boosted his price target to $57. He cited the “unprecedented demand” for his bullish take while also noting the accelerating rate of “new customer conversions and existing deal expansions.”

These results validate Ives’s (and my) bullish view. To be clear, not all investors will see Palantir stock as an opportunity, particularly since the stock is currently selling for roughly 140 times forward earnings. Given its lofty valuation and the inherent volatility of the stock, any failure — real or perceived — could bring Palantir crashing back to earth. If you have any doubts, check the stock chart between 2021 and 2023, when Palantir lost nearly 73% of its value.

The market for generative AI is expected to be worth between $2.6 trillion and $4.4 trillion over the coming decade, according to global management consulting firm McKinsey & Company. If Palantir can earn even a small slice of this opportunity — and I believe it can — the stock will be worth much more five to ten years down the road.

Given its consistent execution, massive opportunity, and growing profitability, I believe Palantir is a buy. For those put off by the stock’s lofty valuation, look for opportunities to buy on any weakness or simply dollar-cost average into the stock.

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.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $912,352!*

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 quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of November 4, 2024

Danny Vena has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.

Palantir Technologies Just Took Wall Street to School. 1 Analyst Predicted the Outcome. was originally published by The Motley Fool

Palantir Technologies Just Took Wall Street to School. 1 Analyst Predicted the Outcome.

Toyota aims to ramp up China production in a strategy pivot

3 Top High-Yield Financial Stocks to Buy in November With Yields as High as 6.3%

Related Posts

Leave a Reply - Cancel reply