Palantir’s Untapped Potential: Decoding the Long-Term Artificial Intelligence (AI) Stock Value for Strategic Investors

Companies today generate mountains of data. This data can be of great value – but only if it is properly harnessed, visualized and used to improve decision making. Often, however, this data resides in a variety of different software systems, with different parts siloed in platforms that cannot communicate with each other, making it difficult to try to see the bigger picture. For example, a company may have a customer service database, business management software, a marketing platform and more. Bringing the data from all of these platforms together in one system and mining the integrated results for actionable insights is Palantir‘S (PLTR 0.44%) specialty and why his services are in demand.

The Palantir Artificial Intelligence Platform (AIP) is the company’s latest innovation and is full of potential.

Customers flock to Palantir AIP

Imagine a wholesale supplier facing a severe weather event affecting one of its centers. Management needs to know the most efficient alternative methods to deliver to its customers and how its decisions will impact margins. Or perhaps you manage a company’s inventory and need to know how a price increase or decrease will affect demand. Or you want to automate your payment processing to suppliers by unifying documents such as purchase orders, invoices and warehouse receipts. These are all use cases for Palantir’s AIP.

AIP uses rich language models that allow its customers to ask questions like these in plain English and get actionable answers. Selling a platform this complex is difficult. Researching use cases for other companies is helpful, but it’s still difficult to imagine how a platform like AIP will work in a specific company. That’s why Palantir runs “boot camps” where prospective customers develop use cases tailored specifically to their company in a matter of days. These have proven to be a great way to grow Palantir’s customer base – the number of commercial customers in the US is exploding.

Source: Palantir.

In the first quarter, this meant a 40% year-over-year increase in U.S. commercial sales to $150 million and a 27% increase in global commercial sales to $299 million. Government revenue grew at a slower pace, up 16% to $335 million. Penetration of the commercial market will be critical to Palantir’s long-term success.

Total revenue rose 21% year-on-year to $634 million in the first quarter, and Palantir was able to increase its profitability. But not everyone is convinced.

Investigating the Palantir Bear Case

Palantir is very popular among retail investors and has sparked heated debates between bulls and bears in recent years. The company systematically refutes many of the bear arguments. I will present two of them to you.

Initially, many lamented the company’s continued unprofitability. This was a valid criticism, as the company was accumulating annual losses until 2023, when it reached profitability. Palantir has reported net profits for the past six quarters and increased operating profit dramatically.

PLTR Net Income (Quarterly) data by YCharts.

Second, Palantir bears pointed out that the company makes extensive use of stock-based compensation to reward its employees. The majority of these payouts typically go to top executives. However, issuing a large number of new shares to pay the team causes the number of shares outstanding to increase and shareholders’ share of the pie to decrease. However, Palantir has been scaling back its stock-based compensation as its revenue has increased.

PLTR Stock-Based Compensation (TTM) data from YCharts.

Stock-based compensation also helps companies conserve cash. Palantir ended the first quarter with $3.9 billion in cash and investments on its books and had no long-term debt.

Is Palantir stock a buy?

Another reason why some investors remain in the bear camp of Palantir is its high valuation. The stock trades at almost 25 times current sales. That is a lower price-to-sales ratio than CrowdStrike and a higher than Snowflake – both, like Palantir, are high-growth software companies with a market capitalization of less than $100 billion.

PLTR PS ratio data from YCharts.

The stock also trades at a higher valuation than its historical average. However, Palantir is the most profitable of these three technology companies. Over the last four quarters, Palantir generated an operating profit of nearly $200 million, compared to $24 million for CrowdStrike and a loss of $1.2 billion for Snowflake.

Investors can exercise patience when deciding to buy Palantir stock. The best strategy would be to gradually and regularly increase your holdings over time so that you can profit from any price declines. A dollar-cost averaging strategy can reduce the short-term risk of investing in high-priced stocks.

Palantir has established itself as a leader in data and artificial intelligence management. Although the company’s valuation is high, its earnings are growing and the company is financially well positioned for long-term success.