PLTR Stock: Why is Palantir up 61.3% Year-to-Date?

Palantir is best known as a provider of data analytics software to the US Department of Defense. It also has a long-standing position in artificial intelligence, which some analysts believe is having a positive impact on PLTR stock, and may be behind a recent swing to profitability.

Palantir Stock: An Introduction

Palantir [PLTR] develops data management and analytics software. Its two key products, Gotham and Foundry, allow enterprises to combine data from multiple sources into a single data asset, and to identify patterns within that data set. As such, Palantir can loosely be defined as a ‘big data’ or ‘data as a service’ stock.

Palantir’s products are deployed across a wide range of commercial industries. The company is also well known for providing key decision-making tools for the US military and its allies.

Is Palantir an AI Stock?

Like many technology companies, Palantir has embraced artificial intelligence (AI) and is establishing itself as a pioneer in the field. Palantir’s status as a leader in AI was recognised by renowned research and advisory firm Forrester in July 2022, four months before the general release of ChatGPT. 

In May, the US Department of Defense (DoD) Chief Digital and AI Office awarded Palantir a production contract to license its AI-enabled operating system across the DoD. Initially worth $153m, the contract could be worth up to $480m over a five-year period.

“These awards represent a vital step in warfighter adoption of AI, moving cutting-edge technology from experiment to enterprise production,” Shannon Clark, Head of Defense Growth, Palantir, said in a press release.

Palantir’s AI platform (AIP) isn’t just used in warfare; it is also helping to save lives by coordinating workflows in hospitals. Tampa General Hospital, for example, announced plans in June to deploy a ‘care coordination operating system’ incorporating AIP to automate and optimise hospital workflows.

Why Did Palantir’s Stock Fall After Earnings?

Palantir’s share price has gained 61.3% year-to-date as of 8 July, and 80.6% in the preceding 12 months.

AIP appears to be a positive influence on Palantir’s stock. According to Morningstar, the platform has been instrumental in improving Palantir’s net retention rate (a measure of its ability to upsell customers). The metric stood at 111% in Q1 2024, up from 108% in the previous quarter.

However, it is worth noting that Palantir’s share price fell by 15.1% on 7 May, the day after it announced Q1 results. While the company increased its full-year revenue guidance to $2.68–2.69bn, this falls short of the $2.7bn expected by LSEG analysts.

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Palantir Financials

2023 was a landmark year for Palantir, marking its first swing to a full-year profit on a GAAP basis. Net income came in at $209.8m, up from a loss of $373.7m in 2022. This yielded diluted earnings per share (EPS) of $0.25, up from $0.06 in the prior year.

In Q1 2024, Palantir posted its sixth consecutive quarter of GAAP profitability. Revenue increased 20.8% year-over-year to $634.3m, while net income increased 453.9% to $106.1m. Adjusted EPS rose from $0.05 to $0.08.

Comparing Palantir, Oracle and Snowflake Stock

There are various businesses that Palantir could consider competitors. Most of the diversified big tech companies — especially Microsoft [MSFT], Google [GOOGL] and Amazon [AMZN] — have products or divisions that directly compete with Palantir’s data analytics products.

Outside of the ‘magnificent seven’, two particularly relevant companies are Oracle [ORCL] and Snowflake [SNOW]. Both companies build software that facilitates big data management and analytics.

Source: Yahoo Finance and LSEG

There are pros and cons to all three stocks. Oracle has the largest market cap and is the cheapest stock compared to its recent revenue and expected future earnings, but it has somewhat slow expected revenue growth. Snowflake, the smallest of the three companies by market cap, is relatively cheap compared to its sales, but it has a high valuation compared to its expected future earnings.

Palantir sits in between both stocks; it has the highest price-to-sales (P/S) ratio, but a substantially lower forward price-to-earnings (P/E) ratio than Snowflake, alongside faster expected revenue growth than Oracle.

Palantir Stock: The Investment Case

The Bull Case for Palantir

While it is still a relatively small player in terms of sales and market share, Palantir has long been recognised as a developer of high-quality data management and AI software.

The company is expected to grow revenues at over 20% for the next two financial years and has a track record of beating both its own guidance and analyst estimates, according to Morningstar. Having recently swung to a profit, LSEG analyst consensus is that Palantir could deliver increasing EPS over the coming years.

The Bear Case for Palantir

Morningstar analysts view Palantir as overvalued. They rate its economic moat as ‘narrow’, implying that it could face stiff competition in maintaining its market share, and its uncertainty as ‘very high’.

This is corroborated by a wide spread of analyst expectations for the stock. The 16 analysts polled by LSEG yielded a median 12-month price target of $23.50 for Palantir stock, 15.2% below the 8 July close of $27.70. The high target among this sample yielded 26.4% gains to $35.00, while the low target suggests a 67.5% fall to $9.00.

Should You Invest in Palantir?

The variance in the above forecasts highlights the fact that Palantir operates in a highly competitive market. While its software is viewed as a market leader, as evidenced by the faith the US government shows in it, many other companies, including mega cap big tech firms, are potential competitors.

While some analysts envisage the Palantir share price continuing its recent impressive run of gains, others think the stock has now become overvalued, and can see it crashing.

When reaching any investment decision, it is imperative to conduct thorough research.

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