Palantir Technologies (NASDAQ:PLTR) It has been one of the hottest stocks on the market in recent months. Shares are up 320% year to date as of December 5 on enthusiasm surrounding artificial intelligence (AI). This makes Palantir the best performing member of Standard & Poor’s 500 (SNPINDEX: ^GSPC) this year.
The company is currently valued at $165 billion, but Dan Ives of Wedbush Securities believes “Palantir could be the next oracleThis statement might have drawn more investors’ attention had Ives chosen (for lack of a better word) a modern comparison, but the implications are still enormous for shareholders.
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Oracle is worth $500 billion (200% more than Palantir), and has a strong presence in several enterprise software sectors, including analytics and business intelligence platforms. Ives doesn’t expect Palantir shares to rise 200% over the next 12 months, but instead believes the company can grow to that valuation over the next three to four years.
What makes this call particularly surprising is that most critics remain skeptical about Palantir. Among the 20 analysts who follow the company, the average price target for the stock is $38 per share. This means a 47% decline from its current share price of $72.
Here’s what investors should know about Palantir.
Palantir helps business and government organizations make sense of complex data. Its core products, Gotham and Foundry, allow customers to combine information and… Machine learning ML models in analytical applications. And for her Amnesty International The AIP platform adds support for large language models and generative AI to its core software products.
In August, Forster Research The company is recognized as a leader in AI/ML platforms. “Palantir has quietly become one of the largest players in this market,” the analysts wrote. In September, Dresner Advisory Services listed Palantir as a top vendor in its 2024 Market Study for AI/Machine Learning and Data Science Software.
This puts the company in a good position. The International Data Corporation (IDC) estimates that spending on AI platforms will increase by 41% annually until 2028. Meanwhile, Grand View Research expects the data analysis software market to grow by 27% annually until 2030.
Palantir checked all the right boxes in its third-quarter financial report. The company exceeded expectations, raised full-year guidance, and provided an encouraging outlook for the business. Total revenue rose 30% to $725 million, the fifth consecutive acceleration in a row, and non-GAAP net income rose 43% to $0.10 per diluted share.
Particularly important was the 40% sales growth among US government customers, an acceleration from 24% in the second quarter and 12% in the first quarter. CFO Dave Glazer attributed this rise to new contract awards that reflect the growing demand for artificial intelligence in government programs. For example, Palantir recently won a $100 million deal that will expand its Maven Smart battlefield awareness system to more U.S. military personnel.
Looking ahead, management now expects full-year revenue to increase 26%, which is 3 percentage points faster than the company had previously expected. However, these forecasts indicate that revenue will grow 26% in the fourth quarter, which is a slowdown from 30% in the third quarter.
Palantir should leverage organizations across commercial and government sectors’ use of AI analytics to improve business productivity and operational efficiency. But the assessment is somewhat worrying. Wall Street expects adjusted earnings to increase 25% annually through 2027, making the current price-to-earnings ratio of 205 look absurdly expensive.
Wedbush analyst Dan Ives believes Wall Street is underestimating how much Palantir will benefit as demand for AI software increases. He estimates that profits could grow 15% to 20% faster than analysts expect. But the current valuation still seems unreasonable even in this scenario. In fact, DA Davidson’s Jill Loria recently said Palantir is trading at an “unprecedented premium” compared to other software companies.
Ives seems unconcerned with valuation, but he also sees very little upside in the near term. Despite saying that Palantir could be the next Oracle, and once referring to the stock as “possibly the best name for pure AI,” Ives’ 12-month price target of $75 per share implies an upside of only 4% from its price. Current stock of $72.
Personally, I think investors should avoid this stock now. Palantir is performing well in what promises to be a huge market opportunity, but the current valuation appears disconnected from the fundamentals of the business. My opinion may cause near-term regret if Palantir shares continue to rise, but I think investors will have the opportunity to buy at a much cheaper price in the future.
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Trevor Genuine He has positions at Palantir Technologies. The Motley Fool has positions in and recommends Oracle and Palantir Technologies. The Motley Fool has Disclosure policy.
Buy Palantir shares before they rise 200% to $500 billion, according to Wall Street analyst. Originally published by The Motley Fool