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Palantir Technologies (NASDAQ: PLTR) stock has been one of the biggest winners of the artificial intelligence (AI) revolution so far. Anyone who added it to their Stocks and Shares ISA when ChatGPT was released in late 2022 is up around 1,000%!
However, the Palantir share price has fallen from $125 to $84 in just over a week. That’s a 32% drop! Is this my chance to buy the stock for my ISA? Let’s dive in.
What does Palantir do?
Palantir is a data-mining company that operates a number of software platforms. One called Gotham enables data-driven decision-making for national security and is used by agencies like the CIA and FBI. It helps analyse counterterrorism and cyber threats, providing real-time intelligence. It’s widely believed that Gotham played a role in tracking down Osama bin Laden.
Meanwhile, Foundry is a data analytics platform for commercial organisations. For example, BP‘s using it for energy insights, Scuderia Ferrari for data-driven decisions around F1 car performance, and the NHS to reduce waiting lists.
Finally, Artificial Intelligence Platform (AIP) enables customers to deploy large language models and AI automation while maintaining strict data security. Many Fortune 500 firms have been flocking to AIP.
Rapid growth
Last year, revenue jumped 29% year on year to $2.9bn, while adjusted free cash flow topped $1.25bn, representing a 44% margin.
In the fourth quarter, Palantir’s customer count grew by an astonishing 43%. This is great news for shareholders, as many customers sign multi-year contracts. Plus, once onboard, clients typically expand their usage over time, driving even more growth.
Speaking about AI, co-founder and CEO Alex Karp recently said: “We are still in the earliest stages, the beginning of the first act, of a revolution that will play out over years and decades… And the momentum we are seeing across sectors, both commercial and government, is unlike anything that has come before.”
Why the sell-off?
This is very exciting stuff. So why has the stock lost a third of its value in a few days? There seems to be a few reasons.
First, proposals have been put forward for an 8% reduction in the US defence budget, amounting to around $50bn annually over the next five years. The concern here is that Palantir may struggle to win new defence contracts due to these budget constraints.
Next, Karp has disclosed plans to sell nearly 10m worth of shares in the next six months. While that’s nowhere near his full stake in the firm, it’s caused a few jitters.
Finally, the stock was extremely overpriced. Even following the sell-off, the price-to-sales multiple is around 68, while the forward-looking price-to-earnings ratio is over 100. Those are very high multiples that leave little room for error (slowing growth, for example).
My decision
This is definitely a stock I want in my portfolio though. The company is founder-led, extremely innovative, and growing very strongly.
Moreover, a bit like Nvidia with AI chips, Palantir’s quickly becoming the go-to software partner for companies looking to integrate AI into their operations. The list of blue-chip clients speaks for itself.
The stock’s still very pricey. But if it continues to fall over the coming days, I may buy a few shares, then look to build up my position over time.
