Palantir's Stock Soars Amid AI Boom and Nasdaq-100 Prospects

Palantir Stock Is Up 250% in 2024 and May Be Headed to the Nasdaq-100. History Says This Could Happen Next. | The Motley Fool

Palantir is one of the hottest artificial intelligence stocks on the market. Shares of Palantir Technologies (PLTR -6.86%) have advanced more than 250% year to date due to strong financial results. This was driven by strong demand for its artificial intelligence (AI) platform and excitement surrounding the company's addition to the S&P 500. Last week, Palantir announced plans to remove itself from the New York Stock Exchange and relist on the Nasdaq exchange, effective Nov. 26. The company said in a press release that it "anticipates meeting the eligibility requirements of the Nasdaq-100 index" once the move is complete. Ultimately, transitioning to a different index won't have a major impact on the business, though it can improve the liquidity and visibility of the stock. Consequently, Palantir shares jumped more than 11% on the news, and history says there may be more gains in store for shareholders if the company is added to the Nasdaq-100. Here's what investors should know. The Nasdaq-100 tracks the 100 largest non-financial companies that trade on the Nasdaq Stock Market. The index is rebalanced quarterly in March, June, and September and reconstituted annually in December. That means Palantir could be added to the Nasdaq-100 within weeks of relisting on the Nasdaq exchange. Past performance is never a guarantee of future results, but I reviewed historical data to see what typically happened to a company's stock price after it was added to the Nasdaq-100. Here's what I found: In short, history says Palantir shareholders could see upside between 11% and 17% during the year after the company is added to the Nasdaq-100. Of course, that's hypothetical at this point because Palantir hasn' yet been selected to join the index. More importantly, whether or not Palantir is included in the Nasdaq-100 index has nothing to do with its business, which means any impact on its stock price will likely be transitory. To that end, investors shouldn't buy Palantir stock simply because it may be added to the Nasdaq-100 in the near future. Instead, the decision to buy or avoid the stock should be based on its financial profile, growth prospects, and valuation. Palantir specializes in data analytics and artificial intelligence. Its core platforms, Foundry and Gotham, help commercial organizations and government agencies integrate complex data, develop machine learning (ML) models, and query data to surface insights that improve decision-making. And its artificial intelligence platform (AIP) adds support for large language models. In the commercial sector, manufacturers lean on Palantir's Foundry platform to optimize production and avoid supply chain disruptions, while retailers use the product to manage inventory and improve marketing. In the government sector, various agencies involved in defense and intelligence rely on the Gotham platform to identify potential threats and prevent criminal activity. Forrester Research recently recognized Palantir as a leader in AI/ML platforms, a market forecast to grow at 41% annually through 2028, according to the International Data Corp. (IDC). Principle analyst Mike Gualtieri wrote, "Palantir is quietly becoming one of the largest players in this market." Palantir reported impressive financial results in the third quarter, beating forecasts on the top and bottom lines. Revenue increased 30% to $726 million, accelerating for the fifth consecutive quarter, and non-GAAP earnings soared 43% to $0.10 per diluted share. CEO Alex Karp told shareholders, "The release of our newest platform, AIP, has transformed our business." Unfortunately, Palantir presents investors with a tricky choice. Demand for AI/ML software is expected to rise markedly in the coming years, and Palantir is clearly executing on that opportunity. But the stock trades at an outrageous 175 times adjusted earnings. That multiple looks expensive even if we assume earnings increase at 40% annually through 2028 (i.e., in line with the forecasted growth of the AI/ML platforms market). I think investors should avoid this stock at the present time. That doesn't mean Palantir shares will crash in the near future, but rather that other AI stocks trade at more reasonable valuations, which makes them less risky.

Where Will Palantir Stock Be in 1 Year?

Few companies have reacted more to Trump's presidential election victory than Palantir Technologies (PLTR -6.86%), a data analytics and artificial intelligence (AI) company with a strong focus on defense and law enforcement. The company has added billions to its market cap, with shares up by a jaw-dropping 50% since the election. But is Palantir's recent rally based on hype and excitement or sustainable economic fundamentals? Let's dig deeper into what the next 12 months could have in store for this unique technology leader. Pivoting quickly to AI Founded in 2003, Palantir is arguably an early AI company. Its software-as-a-service platforms are designed to extract insights from large volumes of raw data to help organizations notice patterns, improve efficiency, and generate growth. The implementation of the large language model (LLM) technology behind algorithms like ChatGPT allows it to perform these tasks faster and deliver real-time insights. This is a hugely competitive industry, with cloud computing giants like Microsoft, Snowflake, and Amazon offering similar services. However, Palantir seeks to differentiate itself with a focus on tailor-made solutions that can emphasize security. The company offers its services through three core platforms: Gotham, Foundry, and the Artificial Intelligence Platform (AIP). Gotham helps government clients with decision-making, intelligence gathering, and military targeting. Foundry specializes in finding business efficiencies and trends for corporate clients, while Palantir's AIP helps all types of organizations create and deploy AI applications. The Trump effect If stock price trends are anything to go by, Trump's presidential election victory has boosted optimism for Palantir's stock. While stock moves don't always have a tangible rationale behind them, this trend may have something to do with Palantir's role in the previous Trump administration when it helped Immigration and Customs Enforcement (ICE) with tracking down and deporting undocumented immigrants. The customized data analytics solution called Falcon (which Palantir created for ICE) uses data accumulated from government surveillance networks and public records to help agents plan future raids and operations. While the tools attracted a great deal of negative publicity from the media and activists, Palantir didn't back down -- allowing it to keep the contract and positioning it for future controversial deals. That said, the Falcon contract only generated $127 million between 2013 and 2022, which isn't a game-changing amount for Palantir. Furthermore, Business Insider reports that the company may lose the contract as ICE moves to other service providers. Investors should look at Palantir's overall financial position instead of focusing on this relatively minor and uncertain revenue stream. Focus on the fundamentals In the third quarter, Palantir's revenue grew 44% year over year to $499 million. And while government clients still make up 64% of sales, its commercial business is growing fast -- jumping 54% to $179 million in the period. It looks like corporate clients aren't turned off by Palantir's controversial government work. And it can also hold its own in highly competitive generative AI and data analytics opportunities. That said, a great company is not always a great investment if its valuation is out of line with its fundamentals. And with a forward price-to-earnings (P/E) multiple of 143 at the time of this writing, Palantir's stock is too expensive, even considering its healthy growth rate. For context, the S&P 500 has a forward estimate of around 25. And AI industry leader Nvidia has a forward P/E of just 36, despite boasting a significantly faster top-line growth rate of 122% in the third quarter. With this in mind, Palantir looks poised for a significant correction over the next 12 months. And potential investors should tread with caution.

Palantir Reaches Huge Milestone: Here's What Could Happen Next | The Motley Fool

Investors are piling into the analytics and artificial intelligence upstart. It finally happened. After seeing its stock appreciate by more than 250% just this year, Palantir (PLTR 11.14%) has now surpassed legendary defense contractor Lockheed Martin in market capitalization. The software and artificial intelligence (AI) provider for the government, military, and big business is posting strong revenue growth and inflecting profits. It just reported Q3 earnings, which has propelled the stock up 40% in the past month. Investors are getting increasingly bullish on Palantir stock. But should they be? Here's what might come next for this hypergrowth momentum stock. At a market cap of $136 billion, Palantir is now one of the world's largest defense contractors. The aforementioned Lockheed Martin has a market cap of $134 billion, with competitors, such as RTX Corporation, now one of the few stocks with larger valuations than Palantir. How did it get here? With modern software solutions for the United States military and government agencies. This disrupted the legacy systems (or where no systems existed at all), as the U.S. government is looking for best-in-class software to maintain its edge. Government contracts are large and can expand over time, which is why Palantir's U.S. government revenue keeps growing at a quick pace. Last quarter, U.S. government revenue grew 40% year over year. But Palantir isn't only selling to the U.S. government. In recent years, it has expanded to bring its software and AI solutions to large enterprises with much success. Even though the U.S. government can spend a lot of money, it is truly just one customer at the end of the day. Hundreds of corporations could utilize Palantir's advanced analytical tools, and they are now starting to do so. Accelerating demand from the U.S. government, as well as U.S. corporations, has enabled Palantir to accelerate its revenue growth. Last quarter, U.S. commercial revenue grew 54% year over year to $179 million. With the addition of the steady growth from government contracts and a slight headwind from international sales, overall revenue grew 30% year over year in the third quarter to $726 million. Customer acquisition is growing even quicker. Total customers grew 39% year over year in Q3 and 6% from the second quarter to 629. That may seem like a small number, but remember, Palantir only targets the largest companies looking for custom-built software. The acceleration after Q3 seems to be continuing. Palantir closed 104 deals in the quarter worth over $1 million, which should turn into new revenue-generating customers in future years. Given the long-term nature of these contracts, the most important key performance metric for investors to track is customer count. If the customer count keeps rising, revenue growth will follow. We have talked a lot about Palantir's business. The stock is a different matter. Growth and value are tied at the hip (as Warren Buffett likes to say), meaning it doesn't only matter if a company is growing revenue quickly. It also matters what price you pay for that growth. The good news for Palantir is that, even though growth is accelerating, profit margins have remained strong. Generally accepted accounting principles (GAAP) net income was $144 million last quarter for a margin of 20%. Once revenue growth slows down, I expect profit margins to expand to 30% or higher due to the low variable costs of running a software business. Over the last 12 months, Palantir has generated $2.65 billion in revenue. Let's be optimistic and assume revenue growth will remain strong over the next five years, and this figure can jump to $10 billion. Optimistic for sure, but not out of the question. With a 30% net margin, that equates to $3 billion in annual earnings. Today, Palantir has a market cap of $136 billion. Even if these earnings figures are met, the stock will be trading at a price-to-earnings ratio (P/E) of 45 in five years. That would be a steep valuation, and it is five years after monster growth estimates and margin expansion. The price you pay for a stock matters. Even though Palantir is a fantastic business, I think the stock will perform poorly over the next five years.

This Artificial Intelligence (AI) Software Stock -- A 488% Gainer Since its IPO -- Still Has Massive Upside, According to 2 Wall Street Analysts

Dan Ives of Wedbush Securities and Mariana Perez Mora from Bank of America have high hopes for Palantir stock. One of the breakout stars of the artificial intelligence (AI) revolution is data analytics software company Palantir Technologies (PLTR 3.17%). Since its initial public offering in late 2020, Palantir shares have generated a 488% return as of market close on Nov. 7. But to be honest, Palantir's journey hasn't been without some challenges and drama along the way. Despite a successful public debut a few years ago, shares of Palantir cratered throughout much of 2022 on the backdrop of a tough macroeconomy. With shares trading for just $6 at the beginning of 2023, Palantir's outlook didn't look bright. The company had virtually no presence in the private sector, and growth from its government contracting business was decelerating. However, the launch of the Palantir Artificial Intelligence Platform (AIP) in April 2023 sparked a comeback that even Rocky would appreciate. Two of Palantir's earliest bulls on Wall Street -- Dan Ives of Wedbush Securities and Mariana Perez Mora of Bank of America -- have placed price targets of $57 and $55 on Palantir, respectively. AI has become a catalyst of epic proportions for Palantir, and as of the time of this writing, shares are trading at all-time highs of roughly $56. While Palantir's current share price doesn't leave a ton of room for percentage growth relative to targets put forth by Ives and Perez Mora, it's more important for investors to understand the reasons behind these analyst upgrades and extrapolate what these themes could suggest for Palantir's future. Let the good times roll Palantir CEO Alex Karp began his third-quarter shareholder letter with a brief statement declaring "this is still only the beginning." That's a pretty bold call when your company just posted 30% revenue growth year over year, closed over 100 deals worth at least $1 million, and is minting positive net income and free cash flow on a consistent basis. At some point, you'd expect the momentum to slow down. But apparently, Karp, Ives, and Perez Mora are calling for even more growth. Let's dig into what's driving these optimistic outlooks and explore how Palantir's AI journey is unfolding. Why Wall Street is so bullish One of the ways Palantir has been able to separate itself from the competition since launching AIP is through a unique lead generation strategy. Namely, Palantir hosts immersive seminars called "boot camps," during which prospective customers can demo the company's software suites. This hands-on approach helps leads actually identify a use case around AI and understand how Palantir's software can help ease their pain points. The growth trends depicted above showcase how Palantir's boot camps have helped the company increase its customer roster while simultaneously diversifying its revenue base, which is underscored by a swift penetration of the private sector. However, as Karp and Wall Street suggest, there are many reasons to believe that this growth is still in its early stages. For starters, Palantir has been quietly signing more deals related to the U.S. Military's AI efforts. Although government contracting is a fairly lumpy business, Palantir is demonstrating that the defense sector is an important and evolving pocket of the AI landscape -- an opportunity I'd encourage investors not to sleep on. The chart below benchmarks Palantir against a cohort of leading software-as-a-service (SaaS) companies on a price-to-sales (P/S) basis. The obvious takeaway from the analysis below is that Palantir is the most expensive stock among this peer set. But on a more subtle note, Palantir's price action has witnessed meaningful valuation expansion over the last few months in particular. PLTR PS Ratio data by YCharts Given the momentum fueling Palantir stock right now, I'm not surprised to see shares reach the price targets put forth by Ives and Perez Mora. I think investors should be less concerned about specific prices at this stage and more focused on the long-term narrative surrounding Palantir. Defense tech is still largely an untapped market, and many of Palantir's partnerships with big tech aren't operating at scale yet. I think as time goes on, customer adoption of AIP will continue to accelerate across the company's commercial and public sector operations as more use cases are discovered through AIP. Furthermore, the relationships with many of AI's most influential players have made me optimistic about Palantir's role in the future of AI. While I think the stock is pricey right now, I see further gains ahead and am aligned with the outlook that Palantir's journey is still beginning.

Investors Are Piling Into Palantir Stock After Revenue Soars. Should You Follow? | The Motley Fool

Palantir (PLTR 11.14%) has been one of the hottest stocks of the year, rising around 275% as of the time of writing. However, a massive chunk of that gain came right after Palantir's blowout third-quarter earnings; the stock rose 23% the next day. But that strength has continued well past the day following earnings, as the stock is now up 56% since the company announced outstanding results on Nov. 4. Clearly, many investors are piling into Palantir's stock, but is that a good idea? After all, the stock has seen a massive run-up and has sky-high expectations built into it. Palantir is an artificial intelligence (AI) company that made a name for itself by creating custom AI models for the government. Eventually, it expanded to the commercial space. As of Q3, government business still makes up the majority of its revenue, but it's a very close split, with government revenue making up 56%. Palantir's AI model gives decision-makers real-time guidance based on the data it receives. This is useful in any situation where real-time decisions must be made quickly and accurately. Considering that's a huge chunk of what governments and businesses do, it makes sense that Palantir's business is rapidly growing, with many clients rushing to implement AI into their systems. Another key product Palantir has introduced is its Artificial Intelligence Platform (AIP). AIP allows its clients to integrate AI throughout a business's inner workings, making AI a tool that isn't just used on the side. That's a key differentiator from many AI products available and has been a big reason for Palantir's blowout results. In Q3, Palantir's revenue rose 30% year over year to $726 million. In particular, U.S. commercial revenue rose 54% year over year. Should this demand spread worldwide, it wouldn't be out of line to see its overall revenue growth accelerate to that level. Furthermore, Palantir isn't a growth-at-all-costs business. It is highly profitable and delivered a 20% profit margin in Q3. These are fantastic results that investors should cheer on. However, if the stock's exuberance has priced in all future growth, then there's no reason to own it moving forward. I'm worried that we've reached that point, as the expectations built into Palantir's stock are quite lofty. While 30% revenue growth is impressive, it's not that impressive. AI leader Nvidia saw multiple quarters where its revenue growth was above 200%, and even as it's slowing down, Nvidia is still projected to grow its revenue by about 80% next quarter. However, Palantir is now trading at levels that Nvidia's stock never reached. With Palantir having a more expensive price tag than Nvidia, despite it having an order of magnitude slower revenue growth, it doesn't pass the smell test. Furthermore, if you consider what expectations are built into the stock now, it's clear Palantir has gone up too far, too fast. Let's say the target for Palantir's stock is to trade for 50 times trailing earnings (still a very expensive valuation). Additionally, let's assume that Palantir maintains its 30% revenue growth and its current 20% profit margin. At that rate, it will take over six years to achieve that valuation. That assumes two things: First, the stock price doesn't budge from today's prices, and second, the share count doesn't rise. Considering that Palantir's share count rose 3.5% over the past year, that's a bad assumption and would further increase the amount of time it would take to achieve our target. In reality, Palantir likely has around seven years of growth priced into the stock price already at its current growth rate and profitability level. This is a massive figure and will likely not work out well for investors. As a result, I think it's best for investors to avoid the stock or at least trim some of their gains. Few stocks (if any) have ever traded for more than 50 times sales and worked out. If Palantir were tripling its revenue like Nvidia did in its prime, I wouldn't have this same opinion, but 30% revenue growth just isn't going to cut it for its current valuation.

Meet the Newest Addition to the S&P 500. The Stock Has Soared 845% Since Early Last Year, and It's Still a Buy Right Now, According to 1 Wall Street Analyst.

This artificial intelligence (AI) pioneer was invited to join the storied S&P 500 Index after years of impressive growth. The S&P 500 (^GSPC -1.32%) is regarded by many as the best overall gauge of the U.S. stock market, as it includes the 500 largest publicly traded companies in the country. Given the breadth of businesses that make up the index, it is considered to be the most reliable benchmark of overall stock market performance. To be considered for admission to the S&P 500, a company must meet the following criteria: Palantir Technologies (PLTR 11.14%) is one of the most recent additions to the S&P 500, joining the benchmark on Sept. 23. That makes it one of only 11 companies to make the cut so far this year. Since the dawn of generative AI early last year, Palantir stock has surged 845%, as its expertise in the field drove robust revenue and earnings growth. Given the stock's parabolic move higher, some investors are leery of Palantir's lofty valuation. However, one Wall Street analyst believes this is just the beginning. Let's take a look at what has fueled Palantir's epic run, and if there's additional runway ahead for growth. AI isn't just for big tech Palantir has been developing cutting-edge AI solutions for more than two decades. The company earned its pedigree devising sophisticated algorithms to serve the U.S. intelligence, military, and law enforcement communities. Its systems developed the uncanny ability to connect seemingly unrelated data to foil terrorist plots and bring wrongdoers to justice. The company has expanded beyond its humble roots, bringing the same data mining know-how to enterprise. Palantir's AI and analytics systems dig through data and provide companies with solutions to real-world problems. When businesses began clamoring for useable AI last year, Palantir was quick to develop its Artificial Intelligence Platform (AIP), a generative AI system that provided data-driven answers. The system leverages company-specific data to develop made-to-order solutions. The numbers tell the tale One of the primary stumbling blocks to adopting AI is that most companies lack the expertise to get started. Palantir developed a go-to-market strategy that takes that issue off the table. The company set up boot camp sessions that pair customer representatives with Palantir engineers to ensure they develop the AI solutions they need. This strategy has proven successful beyond the company's wildest dreams. Palantir's quarterly report is teeming with customer testimonials detailing their success stories with AIP, and the evidence is clear. In the third quarter, Palantir closed 104 deals worth at least $1 million. Of those, 36 were worth $5 million or more, while 16 were worth at least $10 million. The company said that many of these agreements were consummated within just weeks of the customer attending a boot camp session. Palantir's overall results paint a compelling picture. Revenue grew 30% year over year to $726 million, while also climbing 7% quarter over quarter. This also marked the company's eighth consecutive quarter of profitability, a streak that contributed to its acceptance into the S&P 500. Perhaps more telling was Palantir's U.S. commercial revenue, including AIP, which grew 54% year over year, while its customer count grew by 77%. This helped the segment's remaining deal value (RDV) soar 73%. When RDV is growing faster than revenue, it provides insight into the company's future prospects -- which are rapidly improving. It also shows that Palantir is quickly moving beyond its reliance on government contracts. While there's no consensus regarding the total addressable market for generative AI, the magnitude of the estimates can be instructional. In Ark Invest's Big Ideas 2024, Cathie Wood concludes that the AI software market could surge to $13 trillion by 2030. The bull case is even more mind-boggling, at $37 trillion. Given Palantir's expertise in the field and its success in helping customers implement AI solutions, it's clear that the company has a long runway ahead. A bullish take There's no denying Palantir's lofty valuation, which has Wall Street split. Of the 19 analysts that covered the stock in October, six rate it a buy or strong buy, seven label it a hold, and the remaining six rate it underperform or sell. What's almost universal among the bears is concerns about its valuation -- but looks can be deceiving. The stock is currently selling for 160 times forward earnings and 40 times next year's sales. However, its forward price/earnings-to-growth (PEG) ratio -- which factors in Palantir's accelerating growth rate -- comes in at 0.5, when any number less than 1 is the standard for an undervalued stock. I'm not the only one who believes the stock is still a buy. In the wake of its admission to the S&P 500, Greentech Research analyst Hilary Kramer opined that Palantir "easily can be" a $100 stock." That represents potential gains for investors of 65% compared to Wednesday's closing price. The analyst cites Palantir's robust and accelerating revenue and profit growth and growing backlog as catalysts for a revaluation of the stock. For investors still convinced Palantir is too expensive, dollar-cost averaging provides a mechanism to build a position over time, adding more shares when the multiple is more attractive. To be clear, Palantir Technologies won't be a fit for every portfolio. However, for those with an appropriate investing time horizon -- and a cast-iron constitution -- Palantir is tapping a vast opportunity within the AI ecosystem, which could be extremely profitable for investors.

Wall Street Warns Investors About Palantir Stock | The Motley Fool

There have been few better stocks to own over the past three months than Palantir (PLTR 1.42%). The stock more than doubled in that time, far outperforming both indexes and other market leaders. This performance can be traced to several events, notably Palantir's inclusion in the S&P 500 in September and its blowout Q3 earnings. But the biggest reason why Palantir is soaring is that many artificial intelligence (AI) investors are flocking to what they see as the software version of Nvidia, which was the leader on the hardware side of AI investing. However, Wall Street analysts aren't as keen on the stock as other investors, as the current one-year average price target from 22 analysts is $36.70, according to the Wall Street Journal. That represents a nearly 40% decline from today's prices, so there is clearly a disconnect between what analysts think and how the market is pricing the stock. Is this a warning sign that investors should heed? Or are the analysts wrong? Palantir made a name for itself by offering purpose-built AI models for its clients. While it started off by doing this in the government sector, it eventually expanded to the commercial side. As of Q3, government revenue is still larger than commercial revenue, with government revenue making up 56% of its total. Palantir is a global business, and its software has been deployed worldwide by governments and businesses alike. However, the bulk of its growth is coming from U.S. sources. Data source: Palantir. These are impressive growth figures, and they give bullish investors some confidence that U.S. momentum could carry overseas and boost revenue growth globally. Additionally, Palantir is growing responsibly rather than following a growth-at-all-costs strategy. The third quarter represented another quarter of a steady profit margin, which is a fantastic sign that Palantir's management has also placed a strong emphasis on profitability. However, as good as these results may be, the biggest question is whether the fundamentals of Palantir's business can actually match the expectations built into the stock price, as many investors and analysts (like myself) don't think they can. The problem with comparing Palantir to Nvidia is that Palantir isn't putting up Nvidia-like growth. While 30% year-over-year revenue growth companywide is fantastic, it's nowhere near what Nvidia delivered investors when it tripled its revenue for multiple quarters. I doubt it ever will, as Palantir's software has far more competition than Nvidia. Palantir is competing against companies that can build AI solutions in-house, consulting firms that already have deep relationships with their clients and the software engineering talent to develop these solutions, and other companies that have pre-built solutions for broad use cases. Furthermore, Palantir will never become a product that small businesses can afford. It only has 321 U.S. commercial customers, indicating average annual spending of $2.23 million. There isn't a huge list of businesses that can spend more than $2 million annually on specific software, so Palantir's product ends up limiting itself to a certain business tier that can afford it. Lastly, Palantir's valuation has spiraled out of control. After its latest run-up after earnings, the stock now trades for 53 times sales. A valuation of 53 times earnings is very pricey. That's an unreal valuation that will likely spell doom for the stock over the long term. Let's say Palantir can gather a price-to-earnings ratio of 45 when fully mature. Additionally, if it can achieve a 30% profit margin (similar to other leading software companies), it would need to maintain its current revenue growth rate of 30% for the next five years. Keep in mind that this is only for the stock to break even. For the stock to grow at a market-beating pace, it would need to grow even faster. I doubt Palantir can maintain that momentum for five years, even if the company does well over that same time span. Palantir is a fantastic company that's leading the way in AI, but the expectations are just too high, and I think investors would be better off avoiding the stock and moving to a different investment.

Palantir Reported a Blowout Quarter, but Is the Stock Overvalued? | The Motley Fool

Shares of Palantir Technologies (PLTR 11.14%) have had an amazing run over the last few years. The stock's recent inclusion in the S&P 500 and strong financial results have sent the stock up 247% year to date, as of this writing. There are a lot of reasons to like Palantir's business. It is capitalizing on a booming market for enterprise artificial intelligence (AI) software with revenue growth accelerating this year. But with a market capitalization of about $135 billion, the stock is starting to overshoot a reasonable estimation of the company's value based on its financial results. Palantir's revenue accelerated to a year-over-year growth rate of 30% in the third quarter, up from 27% in the second quarter. This growth exceeded management's guidance by over four percentage points. It's also impressive that Palantir is starting to see more balanced growth from commercial and government customers, which wasn't the case a year ago when the commercial segment was growing much faster than its government business. Palantir's U.S. commercial revenue grew 54% year over year, while government revenue increased 40%. It was the strongest growth for the government segment in 15 quarters. In September, Palantir signed a contract worth nearly $100 million to expand its Maven Smart System across military services over five years. Palantir is also adding tremendous value for commercial customers. It closed over 104 deals worth over $1 million last quarter. Companies are noting significant improvements to their operations. For example, Trinity Rail saw a $30 million boost to profits using Palantir's artificial intelligence platform (AIP). AI software is a competitive market with C3.ai being another viable alternative for companies looking for ways to improve productivity and workflows. But Palantir is not only growing faster than C3.ai, it is clearly able to price its product to earn a healthy margin. Its adjusted free cash flow was $435 million in Q3, bringing the company's trailing-12-month free-cash-flow margin to 39% of revenue. I never like to call any stock overvalued. Great companies have a way of proving skeptics wrong. Consider Amazon during the peak of the dot-com bubble when seasoned investors thought the stock was grossly overpriced. But even from its "overvalued" share price in March 2000, Amazon's market cap has increased from $25 billion to around $2 trillion. It's worth paying a premium for Palantir, but no stock is worth ignoring valuation entirely. The stock's $135 billion market cap is very high against its $2.6 billion in revenue and $980 million in free cash flow. Palantir has had a volatile trading history, and its high valuation puts it at greater risk of experiencing a pullback sooner or later. I would focus on other opportunities and keep an eye on Palantir stock, at least until the business has grown enough to bring its valuation down from these peak levels.

1 Fantastic Trend for Palantir Technologies That Could Help the Stock Soar Higher | The Motley Fool

Just when you think Palantir Technologies (PLTR 1.42%) stock can't go higher, it finds a way. The data analytics company has been one of the biggest winners due to artificial intelligence (AI). It has been using AI to offer an even better platform to its customers, which it has been winning over in droves. The company recently posted earnings, and it has beaten expectations yet again. While its valuation may appear to be extremely high, there is a promising trend that, should it continue, could help the stock rally even further. Revenue growth can be exciting, but what's much more important in the long run is the bottom line. If a company can grow its earnings at a high rate, that can improve its price-to-earnings (P/E) multiple and make the stock a better value buy for investors. This can be particularly key for Palantir, whose P/E ratio is now at around 300. The good news for investors who may be worried about that valuation is that the multiple may come down as the business scales its operations and its bottom line grows. While profitability wasn't always the norm for Palantir, investors have now become accustomed to strong profits. And margins have been improving in recent quarters. In the company's most recent quarter, Palantir achieved revenue growth of 30%. That's a quicker rate than the 27% growth it recorded three months earlier. Business is clearly picking up for the company. But what's more impressive is that its operating profits are rising at an even faster rate, and that's an extremely positive trend for the stock. This is a great sign that Palantir is becoming more efficient as it is scaling its operations, creating value for its customers while also finding ways to do it without having to spend excessively. That suggests the business' platform, AIP, is doing a good job of convincing customers of its usefulness without Palantir needing to invest heavily in sales and marketing efforts to grow its business. As of the end of last week, Palantir's stock was up more than 250% since the start of the year. It has been on a tear, and its latest earnings numbers are sending it to new heights yet again. But at around 300 times earnings, the stock is expensive, and the risk is that, at some point, it may be due for a correction. This is why investors who buy Palantir stock should plan to hold on to it for at least a few years, as a lot of future growth is already priced into its valuation.

1 Billion Reasons to Love Palantir Stock Right Now | The Motley Fool

Palantir is quickly becoming an important pillar supporting the U.S. military's focus on artificial intelligence (AI). A little over 10 years ago, I had a curious encounter on the metro in Washington, D.C., that ended up changing my life. While mindlessly scrolling on my iPhone to pass the time, I noticed a man cruising on his laptop in the seat across from me. He was wearing a black winter beanie that said "Palantir" on it. Curious about what it could mean, I went onto Google and searched for Palantir. Unbeknownst to me, Palantir Technologies (PLTR 11.14%) was a data analytics software developer specializing in defense technology for the U.S. military. From that moment on, I continued monitoring Palantir over the years and was particularly excited when the company finally went public back in late 2020. Fast-forward a few years, and now Palantir has emerged as a major force within the artificial intelligence (AI) realm. Below, I'm going to break down how AI is making waves in the defense sector and why I see Palantir as a no-brainer stock to watch as the military doubles down on defense tech. When it comes to AI, you probably think about applications related to workplace productivity, robotics, or even drug discovery capabilities. The subtle thing about use cases like these is that they tend to be viewed in a positive light. In other words, people enjoy talking about them and therefore they end up getting a lot of coverage. The defense industry is different. While it's pretty well known that government contracting is an enormous business, I think it's fair to say that most people try to refrain from talking about the business side of the military. But the fact of the matter is that the federal government (including the Pentagon) has many of the same needs and pain points as a private corporation. Just like any organization, defense agencies keep track of budgets, undergo long and strict procurement processes, and have to monitor things such as headcount and inventory. During times of geopolitical unrest, the importance of cybersecurity and data analysis becomes even more pronounced -- as it's mission-critical to provide the tools required to make informed decisions quickly and efficiently. And that's where Palantir enters the picture. During much of 2024, Palantir has quietly announced a number of big contract wins with the Department of Defense (DOD). Megacap tech behemoths Amazon and Microsoft have noticed Palantir's strong presence within the defense sector, and both companies have integrated Palantir's Artificial Intelligence Platform (AIP) with their respective cloud infrastructures, Azure and Amazon Web Services (AWS). These partnerships are focused on enhancing security protocols within the DOD. But in early November, Palantir may have just secured its most lucrative win yet with the military. According to public records, the Naval Information Warfare Center (NIWC) appears to be awarding Palantir with a contract worth nearly $1 billion. The release says the Department of the Navy "intends to award a contract on a sole-source basis to Palantir." The deal is for five years and has an estimated value of $920 million. Palantir's U.S. government revenue is already growing 40% year over year and generates more than $1 billion of revenue per year. Now, it appears the company essentially just doubled its base of U.S. government revenue thanks to the NIWC deal. While I am pumped about Palantir's progress in the defense tech landscape, I have to say that this NIWC is not reason alone to buy the stock hand over fist. Palantir's price-to-sales (P/S) multiple of 54.2 is abnormally high, and trends suggest the stock has experienced some pronounced valuation expansion in recent periods. Even though I think shares have become overbought and the stock is too pricey to buy right now, the bigger idea is that AI is an evolving theme in the military. To me, Palantir appears well positioned to keep penetrating this space and I am optimistic that the company will remain an important player for AI-powered defense capabilities.

Is Palantir Stock Still a Buy? Wall Street Is Telegraphing a Clear Answer. | The Motley Fool

Wall Street, which rarely agrees on anything, is remarkably united in its view on the data mining and artificial intelligence (AI) specialist. The growing utility of artificial intelligence (AI) promises to have a profound impact on our lives. While the technology is still in its infancy, generative AI is improving by leaps and bounds, with new use cases littering the landscape. One of 2024's biggest beneficiaries is Palantir Technologies (PLTR 11.14%). The stock is up more than 240% so far this year and up 820% since AI captured the spotlight in early 2023. Gains of that magnitude have also sent the stock's valuation soaring, making some investors understandably skittish. Let's take a look at the driving force behind Palantir's ascent, what Wall Street has to say about the matter, and whether the stock is a buy right now. Palantir rose from the ashes of the 9/11 terrorist attack on the premise that siloed intelligence data contained a number of clues that could have prevented the tragedy. Founder Peter Thiel envisioned a system that could pull data from a variety of sources and apply sophisticated algorithms to connect seemingly disparate pieces of information to identify would-be terrorists before they could act. Palantir was the fruit of that vision and became the go-to for U.S. intelligence agencies and our allies. The company has since expanded beyond its original defense offerings, applying the AI knowledge it developed to serve enterprise companies, using its data mining and business analytics expertise to provide customers with actionable intelligence. The game-changer came early last year when Palantir introduced its Artificial Intelligence Platform (AIP), which harnesses generative AI to make its systems even more useful to enterprises. By tapping into existing data, AIP can address company-specific issues, providing solutions that might otherwise be missed. For example, in a demo video, Palantir illustrates how AIP can leverage company data to minimize production disruptions in the face of an oncoming hurricane. The system scrutinizes remaining orders and recommends which ones to accelerate, delay, or cancel. It also suggests which ones should be handed off to other fulfillment centers and how pursuing alternate delivery options will impact backlogs and profits. In another masterstroke, Palantir took much of the guesswork out of implementing AI solutions by hosting boot camp sessions. "These immersive, hands-on sessions allow new and existing customers to build live alongside Palantir engineers, all working toward the common goal of deploying AI in operations," Palantir wrote. The ability to address real-world business problems has fueled robust demand for these boot camps, resulting in accelerating the conversion of AIP deals. The unbridled success of AIP has had a telling effect on Palantir's results. In the third quarter, revenue grew 30% year over year, while adjusted earnings per share (EPS) jumped 43%, but that only tells part of the story. Palantir's U.S. commercial revenue, which houses AIP, jumped 54%, and the segment's customer count grew 77%. Furthermore, the segment's remaining deal value -- which provides insight into upcoming results -- increased by 73%. So, the future is bright. The recent run-up in Palantir's price has understandably sent up a red flag for some investors as it has come with a commensurate increase in its already frothy valuation. The stock is currently selling for 157 times forward earnings and 39 times forward sales, which is egregious no matter how you measure it. This has many on Wall Street moving to the sidelines. Of the 20 analysts who cover Palantir, only four rate the stock a buy or strong buy, while 10 recommend holding, and seven rate it a sell. The most recent bearish take comes courtesy of Jefferies analyst Brent Thill, who points to Palantir's pricey valuation as the problem. He acknowledges the accelerating sales and profit growth, saying the "fundamentals are alive," but calculates that Palantir would need to generate 40% year-over-year revenue growth in each of the next four years to justify the current valuation. Argus Research analyst Joseph Bonner concurs, suggesting that if Palantir's growth story were to stumble, "the market tends to punish in highly valued tech stocks." On the other hand, Greentech Research analyst Hilary Kramer posited that Palantir "easily can be" a $100 stock, suggesting Wall Street needs to come to terms with the company's accelerating growth, which she believes has just begun. To be clear, Wall Street has a consensus rating of hold, which suggests investors should exercise care in buying the stock or simply avoid it altogether, at least for now. And these analysts have a point: Any failure to deliver from Palantir, real or imagined, could easily result in the high-priced stock taking a hit and registering double-digit share price declines. So, what does this mean for investors worried they might miss out on the growth story of the year? I personally believe Palantir has a bright future, but I'm also aware of the potential for significant volatility -- particularly in the wake of the stock's 800% price spike since the start of 2023. In cases like this, I tend to buy a small stake in a company, which forces me to watch the stock, paying particular attention to its future performance. This also gives me the option to add to my position at a more attractive valuation (or not), depending on how the future unfolds. Dollar-cost averaging is also an important strategy, as it allows investors to build a position, buying more shares when the price is down and fewer when the price is higher. If Palantir's growth continues to accelerate -- and I believe it will -- investors will want to own a piece of this compelling growth story, but they don't need to bet the farm to hold a stake.

This Artificial Intelligence (AI) Stock Soared Since Trump Won the Election, but Is It a Buy? | The Motley Fool

In the days following Donald Trump's return to the White House, the stock market has set record highs. While Trump has promised to cut taxes and boost business, he's also expressed his desire to regulate certain big tech players, and his tariff-based trade policy could affect the artificial intelligence (AI) companies that rely on foreign-made components. We'll have a better picture of his economic policy in the coming months. For now, investors appear to believe his administration will ultimately be a friend to the AI market. Palantir (PLTR 11.14%), in particular, saw its stock pop dramatically after Election Day, which was the day after Palantir issued its quarterly earnings. How much of this is from positive earnings and how much is from the election? I would pin the lion's share on its earnings. Palantir's stock was up 23% by market close on Nov. 5, well before we knew who won. That said, the firm certainly could benefit from a Trump presidency, and since the election, the stock is up another 16% as of this writing, so it seems both are at play. So, with so much momentum behind it, is now the time to buy? If you're unfamiliar, the company gets its name from The Lord of The Rings. Palantirs are magical objects that allow their user to see everything happening in real time across huge swaths of land. That is, more or less, what the company does, providing AI-powered intelligence platforms that help companies and government agencies gather information and analyze it. Though it has been using AI and machine learning for years, recent advancements supercharged its product capabilities, and its sales accelerated. Palanir's Q3 numbers were impressive, beating Wall Street's revenue and earnings per share (EPS) estimates by 3.1% and 10.1%, respectively. It brought in $725 million in revenue for the quarter, up nearly 30% from a year ago, while its EPS rose nearly 43%. Those are impressive numbers. Perhaps more impressive is that the company has delivered that kind of revenue growth for three years now while its operating expenses have stayed relatively flat. Check out this chart showing the two lines diverge. Palantir's business appears to be incredibly scalable and, if the trend continues, extremely profitable. Despite the company's success dealing with the government, the revenue growth this quarter was especially driven by a swelling in its U.S. commercial segment client list. As CEO Alex Karp put it, there is a "U.S.-driven AI revolution that has taken full hold." The company's domestic client count rose 77% from a year ago, helping fuel the 54% growth in revenue for the segment. The company expects the trend to continue, setting a year-end target of 50% growth. The boost in clients and revenue is, in part, due to its unconventional sales strategy. Palantir hosts boot camps to demonstrate the utility of its products to potential customers. This strategy stems from Karp's belief that its products are so good they sell themselves. The genius here is that these boot camps keep Palantir lean and its profit margins high. Rather than hiring, training, and maintaining permanent sales staff, the boot camps offer a scalable, cost-effective alternative. It is clear that Palantir is firing on all cylinders; as Karp puts it, the firm "eviscerated" this last quarter. Palantir is an innovative company with a substantial moat at the forefront of a booming industry. All the components are there. However, even a great company can make a poor investment if it's too expensive. And Palantir is expensive. Its price-to-earnings ratio (P/E) exceeds 300. For comparison, Nvidia's P/E is 68, already seen as very high, while Alphabet's is just 24. Granted, both of these companies are more mature, but Nvidia is actually growing faster than Palantir. That said, P/E ratios may leave something to be desired. If we want to better account for growth, the price/earnings-to-growth ratio (PEG ratio) is a great metric. Here, you take a company's P/E and divide it by its growth rate. Anything under 1 tends to be considered fantastic, and more than 2 is not typically ideal. Palantir's PEG is 2.7. Compare that to Nvidia and Alphabet, which both have a PEG of 1.1. Valuations aren't everything; ultimately, a company's stock is worth whatever someone will pay for it. However, the excessive premium the market has put on Palantir's stock means it needs to continue executing flawlessly for years to come if its stock is to avoid being dragged down by its valuation. If you are particularly risk-tolerant, Palantir could be an interesting part of your portfolio, but I can't recommend it at this price for most investors.

1 Key Reason Palantir Stock Has the Potential to Be the "Next Nvidia Stock" | The Motley Fool

The artificial intelligence (AI)-powered software company has a great business model, which is a feature behind all stocks that are big winners over the long term. Nvidia (NVDA 2.09%) is a terrific artificial intelligence (AI) company and its stock is worth buying for many reasons. These include that it dominates the rapidly growing AI chip market and its CEO Jensen Huang has a stellar track record of staying ahead of the competition. That said, Nvidia's massive size will make achieving strong percentage growth in key metrics -- such as revenue, earnings, cash flows -- more and more challenging as time goes on. All other things being equal, it's easier for smaller companies to grow on a percentage basis. Palantir Technologies (PLTR -0.65%) is an AI company that is much smaller than Nvidia and growing rapidly. Assuming management continues to execute well, its stock has the potential to be a huge long-term winner, just as Nvidia stock has been. One key reason for this potential is the company's fantastic business model. Palantir is a software-as-a-service (SaaS) company that provides AI-powered software over the cloud via subscriptions. Its customers include agencies within the U.S. government and those of our allies as well as commercial customers across a broad range of industries. Its platforms help its customers use their data to increase efficiency and effectiveness. Palantir was originally focused on U.S. government agencies involved in intelligence and defense. Its heavy dependence on government spending -- which can be very lumpy -- made some investors hesitant to buy shares early on. But the company is making great progress in building its commercial business. In the just-reported third quarter, Palantir's government business accounted for 56% of its total revenue and its commercial business brought in the other 44%. Data source: Yahoo Finance. Data as of Nov. 11, 2024. GAAP = generally accepted accounting principles. Palantir has not been publicly traded for that long, but it is well established. Moreover, unlike many tech companies that are relatively newly public, it is profitable. As a point of reference, Nvidia has a market cap of nearly $3.6 trillion, as of Nov. 11. That makes its market cap about 26 times larger than Palantir's. Palantir has a business model the produces recurring revenue. Companies that have such business models tend to be attractive for a few reasons: As long as Palantir keeps it existing customers happy, it should be able to count on most of them renewing their subscriptions and some of them increasing their spending on subscriptions. This is a huge positive because it's often time-consuming and expensive for companies to acquire new customers. Indeed, Palantir is pleasing its existing customers. In the third-quarter, its net-dollar retention rate was 118%, CFO Dave Glazer said on the company's third-quarter earnings call. This means that its existing customers from the year-ago quarter increased their spending on its products by an average of 18% over the last year. Though, of course, Palantir is also growing by adding new customers. Data sources: Companies' earnings reports. MRQ = most recent quarter. Operating margin = income from operations/revenue; profit margin = net income/revenue; cash flow margins were previously defined. I chose Microsoft as a comparison company because it's software-focused, and known for its high profit margins and strong cash flows. In other words, it's a tough comparison -- and look how well Palantir stacks up. One number might stick out to you -- Microsoft's free cash flow margin. The reason it is much lower than the company's operating cash flow margin is because Microsoft has high capital expenditures. Namely, it has to invest in data centers to keep its cloud computing service business competitive. If you're a long-term investor, the first thing you should do when considering buying a stock is to delve into a company's business model. You can learn a lot about its business model by just looking at how it makes its money. Of course, there are other factors to consider, such as what are its advantages relative to potential competitors? Who is the target market? How potentially big is the target market? Companies that have subpar or just OK business models can do well over the short term, and their stocks might even soar over the short term. But the stocks of these companies are not going to be huge winners over the long term.

3 Reasons Palantir Stock Is One of the Best Artificial Intelligence (AI) Stocks to Buy Now (Besides Great Revenue and Earnings Growth) | The Motley Fool

The stock's rise was driven by the quarter's revenue and earnings sprinting by Wall Street's estimates, fourth-quarter revenue guidance coming in higher than the Street expected, and management raising its full-year 2024 guidance for revenue and several other key metrics. The quarter's year-over-year revenue and adjusted earnings per share (EPS) surged 30% and 43%, respectively, driven by "unrelenting" artificial intelligence (AI) demand, said CEO Alex Karp. The government and commercial businesses both performed well, with their revenue jumping 33% and 27%, respectively. The government/commercial revenue breakdown was 56%/44%. In addition to its robust revenue and profit growth, below are three other key reasons Palantir stock is one of the best AI stocks on the market. Palantir is a software-as-a-service (SaaS) company. It provides its software via the cloud through subscriptions of varying lengths. Thus, its core business generates recurring revenue. SaaS businesses that produce recurring revenue tend to be attractive. They often sport high profit margins and their revenue streams tend to be more predictable. Palantir's business model is working well. In Q3, its net-dollar retention rate was 118%, up from 114% in the prior quarter, CFO Dave Glazer said on the earnings call. This means that its existing customers from the year-ago quarter increased their spending on its products by an average of 18% over the past year. This metric does not include revenue from new customers that were acquired over the last year, so it "does not yet fully capture the acceleration in velocity in our U.S. business over the past year," as Glazer noted. Free cash flow margin is calculated by dividing FCF by revenue. This metric tells us what percentage of a company's revenue over a given period (such as quarterly or annually) it turned into free cash flow. Palantir's FCF margin was just over 57% in the third quarter, which is phenomenal. (The company uses a slightly different metric for FCF called adjusted FCF. Its adjusted FCF margin was 60% in the quarter. No matter, as 57% and 60% are close, and both illustrate the point.) For comparison purposes, Nvidia (NVDA -1.60%), Meta Platforms, Microsoft, and Broadcom were used because these companies have great track records of delivering strong FCF margins. In other words, the comparison bar here is high. Granted, quarterly cash flows will vary, so a more telling metric is FCF margin for an annual period. However, except for Microsoft (whose fiscal year ended on June 30, as the orange line indicates), this metric for the most recent fiscal year for the other companies is a little outdated. Unlike many other companies involved in the AI space -- such as Nvidia and other chipmakers as well as chip equipment makers -- Palantir generates either limited or no revenue from China. Here's what it said on this topic in its third-quarter filing with the Securities and Exchange Commission (SEC): We do not consider any sales opportunities with the Chinese communist party, do not host our platforms in China, and impose limitations on access to our platforms in China [...]. Why does this matter? It matters because investors can be assured that Palantir's business will not take a notable hit if the U.S. government further tightens restrictions pertaining to the export to China and select other countries of AI-enabling products that exceed certain performance thresholds. Reiterating part of the closing from my Palantir Q3 earnings article with relevant numbers updated: Palantir stock is trading at 127 times projected [2025] earnings. This is a very high forward price-to-earnings (P/E) ratio. But it's not crazy-high for the stock of a company that Wall Street estimates will grow earnings 48% this year and at an average annual rate of 58.8% over the next five years -- and that generates powerful free cash flows (FCFs). FCF has consistently and significantly been exceeding net income. When you decide to buy a stock, it's best to dollar-cost average (DCA) your way into your full position. Using this method to buy stocks is even more important for stocks that have recently run-up big and could pull back soon because of profit-taking. As an example, if you wanted to allocate approximately $1,000 to buy Palantir stock, you could buy $250 worth of shares every quarter for a year. You could also make smaller purchases monthly for a year or longer. This way you don't risk buying all your shares at what turns out to be a short- or long-term peak.

Can Palantir Sustain Its 300X Valuation After Climbing 266% This Year? - Palantir Technologies (NYSE:PLTR)

Analysts warn of overvaluation, with a 300x P/E ratio despite strong technical indicators and partnerships. Palantir Technologies Inc PLTR has surged over 40% in the past month, 266% YTD, propelled by a series of high-profile partnerships with industry giants like Microsoft Corp, Amazon.com Inc AMZN, and Rio Tinto PLC RIO. The data analytics and AI powerhouse has set a new 52-week high at $63.39, with investors riding the wave of excitement as Palantir's collaborations continue to expand its footprint across the mining, defense, and cloud computing sectors. But with a staggering 300x earnings valuation, Wall Street analysts remain cautious, warning of a potential 37% downside, with a price target around $38.67. Read Also: Palantir Overtakes Lockheed Martin In Market Cap, How Does The 'Messi Of AI' Stack Up Against The Traditional Defense Player Chart created using Benzinga Pro The latest rally, though impressive, has led PLTR stock into overbought territory, with an RSI of 84.62 signaling potential for a pullback. Powerhouse Partnerships Are Fueling Growth PLTR stock's 40% surge the past month isn't just momentum -- it's backed by strategic partnerships. Last week, Palantir renewed its multi-year deal with Rio Tinto, extending the mining giant's access to its Artificial Intelligence Platform (AIP) for another four years. This adds to Palantir's arsenal of strategic alliances, including collaborations with Microsoft and Amazon, where Palantir's AI tools are being integrated into Microsoft's Azure for U.S. defense needs and Amazon Web Services for government AI applications. PLTR Stock Chart Strongly Bullish, But Valuation Is Lofty Meanwhile, PLTR stock is on fire, trading well above its key moving averages, which keeps the bulls in play. Yet, with a P/E ratio around 300x, analysts are questioning the sustainability of this AI-fueled growth. Investors might want to enjoy the ride but keep their eyes on the potential for a pullback as Palantir's next moves unfold. Read Next: Jim Cramer Says These 10 'Frothy' Stocks Are Up Over 200% YTD, Including Rocket Lab, Palantir, And Carvana: Here's What He Suggests Investors Can Do For 'Terrific' Long-Term Returns Photo: Shutterstock Market News and Data brought to you by Benzinga APIs

Palantir's CEO Is Selling Stock; Should Investors Follow Suit? | The Motley Fool

Palantir Technologies (PLTR 11.14%) has been one of the hottest stocks in the market this year, with the stock trading up more than 246% year to date as of this writing. CEO Alex Karp took a victory lap following his company's most recent earnings, saying the results were so strong that "I almost feel like we should just go home." Later he took a swipe at any critics who challenged his sanity in making such a comment. But while Karp has been celebrating the success of his company and its stock, he has also been aggressively selling shares of Palantir. This of course begs the question, should investors follow Karp's lead and sell Palantir stock? Karp has been a pretty consistent seller of Palantir stock since late 2020, using what is called a Rule 10b5-1 plan. Under these plans, company executives and other insiders set up selling instructions to brokers to sell shares based on a variety of parameters. It can be as simple as selling a set amount of shares on set dates regardless of price, or it could use a set of much more complicated triggers. Karp appears to be using a more complicated set of triggers, but whatever they are have led to a huge increase in selling by the CEO in the couple of months. All of these recent sales have been through the exercise and then sale of stock options. Karp's increased selling began in mid-September when he exercised options and sold 9 million shares at an average price of $36.18, worth $325.6 million. Just ahead of earnings he exercised options and sold an additional 5.66 million shares at an average price of $45.01, taking home $254.6 million. Then immediately after earnings, he exercised options and sold more than 12.3 million shares at an average price of $52.71, good for proceeds of $650.6 million. Before the acceleration in selling, Karp's sales were more in the $15 million to $22 million range. Karp wasn't the only insider to sell shares after earnings. Chief Accounting Officer Heather Planishek and Director Lauren Friedman Stat also sold shares via 10b5-1 plans. This isn't the first time Palantir has seen big insider selling, with Chairman Peter Thiel setting up a Rule 10b5-1 plan and quickly disposing of more than 28.5 million shares in September and early October. Palantir is undoubtedly a great company. It initially proved itself by providing data gathering and analytic services to the U.S. government and helping it with such mission-critical tasks as fighting terrorism and tracking COVID-19 cases. It has since become a big artificial intelligence (AI) winner, with the U.S. commercial sector now embracing its AI platform. Palantir's big AI push into the commercial sector has helped it see accelerating revenue growth, with revenue jumping 30% year over year last quarter. It was the company's fifth straight quarter of revenue growth acceleration, demonstrating the momentum its solutions have. The U.S. commercial sector led the way with a 54% increase in revenue, or 59% when excluding strategic commercial contracts. U.S. government revenue, meanwhile, soared 40% year over year, as the government also has started to embrace its AI solutions. Right now, the company is doing a great job of both bringing in new customers and expanding with existing customers. However, the biggest issue when it comes to Palantir stock is not its operational performance, it's with Palantir's valuation. Following the recent surge in stock price, the stock now trades at a forward price-to-sales (P/S) ratio of 41 times 2025 analyst estimates. For a stock growing its revenue by around 30%, that valuation is pretty extreme. While Palantir is a great company, at some point valuation does matter. CEO Alex Karp seems to recognize this as well, which is why he has accelerated his selling of the stock in recent months. Back in August, I wrote that it was not too late to buy Palantir stock. With this latest surge in price, I'm stepping back from that view. I think the smart thing to do currently is to follow the lead of Karp and other insiders and take some profits in the stock after a great run.