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Palantir Technologies (NASDAQ: PLTR) stock has turned out to be the biggest winner of the artificial intelligence (AI) boom so far. In fact, its mindboggling 1,314% surge since the start of 2023 has even outstripped AI chipmaker Nvidia (up ‘just’ 563% in that time).
The gains were even more spectacular a few weeks ago when Palantir stock peaked at $124. However, the recent market sell-off has pulled it back to $90.
This is a software application company I’ve wanted to add to my portfolio for a while. But does this 27% fall tempt me to invest in some shares?
The bull case
Palantir has most things I look for in a growth company. First off, it’s a tech firm providing platforms that analyse complex data to support better decision-making for governments and companies. Its Artificial Intelligence Platform (AIP) helps these customers integrate AI into their operations in various ways.
Businesses have been flocking to AIP in recent quarters, while Palantir has an entrenched relationship with the US government. With most experts predicting that AI will become a multi-trillion-dollar industry over the next couple of decades, Palantir shouldn’t be short of growth opportunities. Especially as its management says it has a “deepening position at the centre of the AI revolution“.
The firm’s growth is very strong. In 2024, revenue jumped 29% year on year to $2.9bn, including a 54% surge in US commercial revenue. Net profit more than doubled to $468m and cash is starting to gush freely.
Looking to its 2025 performance, revenue and earnings per share (EPS) are expected to increase 32% and 35% respectively. And double-digit growth is forecast for many years ahead.
Interestingly, Dan Ives of Wedbush Securities reckons Palantir can become a $1trn company within the next few years. If so, that would represent a gain of 369% from today’s market-cap of $213bn.
Finally, the company’s led by co-founder CEO Alex Karp. The other co-founders, including Peter Thiel, also remain involved. I prefer technology firms that are founder-led, as they are often more innovative and long-term oriented.
Indeed, most of the excusive club of $1trn+ companies (past and present) have been driven there by long-duration CEOs. Think Amazon (Jeff Bezos), Tesla (Elon Musk), Meta Platforms (Mark Zuckerberg), and Berkshire Hathaway (Warren Buffett).
The bear case
The biggest knock on the stock is its valuation. It’s trading on a wild price-to-sales ratio of 77, while the forward price-to-earnings multiple is 169. So there’s arguably no margin of safety at this valuation. If earnings were to come in light or AI spending suddenly slows during a US recession, the stock could easily get crushed. This is my biggest fear here.
After all, even the world’s best growth shares can make lousy investments if bought at the wrong time/price.
My verdict
When the stock got knocked down to $74 near the start of April, I started to become more interested. If it had kept falling lower, I would probably have had a little nibble on it. However, it has since rebounded 23% to its current level.
Given its sky-high valuation, I can’t justify investing. So what I’ll do is keep it on my watchlist for now and read the company’s Q1 earnings (5 May).
