Palantir ( PLTR 2.01% ) Mixed messages have been communicated to investors by the company. The Artificial Intelligence Platform (AIP) has promised significant productivity improvements for its customers. One statement mentioned Palantir achieving more in a single day compared to what a hyperscaler accomplished in four months. Another statement suggested the ability to construct projects ten times quicker with three times less resources.
Investors are faced with the challenge of stock of a software service provided as a service Despite the improvements, there was no clear impact on the financial results. Nevertheless, an increase in an important measure could potentially lead to positive outcomes for Palantir.
What is different now?
In summary, the key metric to monitor is revenue.
Palantir initially used AI and machine learning in its Gotham platform to uncover analytical findings in the fields of national security and law enforcement. In the past, Palantir was recognized by investors for its assistance in locating Osama bin Laden for the government.
Afterwards, in order to sustain its growth, Palantir created Foundry to implement the same concepts for commercial sector applications. However, despite the potential for significant growth in Palantir’s target market, the growth rate had dropped to around 10-19% annually, failing to meet the previous expectations of achieving 30% revenue growth each year from 2022 to 2025.
Furthermore, the introduction of AIP did not immediately result in substantial growth. Just last year, in 2023, revenue had only increased by 17%. Additionally, in the initial quarter of 2024, there was not a significant rise, reaching $634 million, representing an annual increase of 21%.
It was only with the newly published report in the second quarter of 2024 that revealed revenue of $678 million, showing a 27% increase compared to the previous year.
Furthermore, Palantir’s estimated Q3 revenue of $697 million to $701 million suggests a 25% increase in revenue at the midpoint. While this falls slightly short of the 30% target, the company is approaching its revenue growth objective.
One agreement that could assist in achieving that revenue growth target is the deal made by Palantir with. Microsoft The collaboration will merge Microsoft and Palantir’s generative AI abilities to create AI-powered operational tasks, likely resulting in a more robust solution than what each company could achieve on their own.
Earnings and appraisal
Furthermore, in contrast to the time when Palantir made that commitment in 2021, the company is currently generating profits. commonly recognized accounting standards The financial statements have been prepared on a Generally Accepted Accounting Principles (GAAP) basis since the fourth quarter of 2022.
It is not unexpected that the rise in revenue has led to a significant boost in profits. The second quarter saw a net income of $136 million, a substantial increase from the $28 million earned in the same period in 2023.
Furthermore, given the apparent achievements of AIP, investors should not be shocked to see the stock price increase by over 60% compared to last year.
Given this increase, it is not surprising that Palantir is anticipating a profitable net income for the last two quarters of the year. This has led to the stock being considered quite costly. The relatively small earnings from previous quarters may have influenced this perception. P/E ratio does not accurately represent its worth, however, considering the recent circumstances The price-to-earnings (P/E) ratio looking ahead. At 82, the stock price may be overvalued compared to its underlying fundamentals.
However, investors may have doubts about the importance of valuation, especially when considering Palantir in comparison to other companies. Nvidia The increase in productivity due to its AI chips has caused Nvidia’s stock price to rise. book value The ratio of 53 is much higher compared to Palantir, which is priced at 16 times its book value.
While Nvidia’s impressive revenue growth in the hundreds of percent does not ensure that Palantir will achieve the same level of revenue increase, it does indicate how quickly a company’s stock can expand when revenue growth aligns more closely with improvements in productivity.
Palantir making progress
With the rise in revenue growth, Palantir seems ready to meet the stock market expectations that bullish investors have been anticipating.
Investors in Palantir have experienced a great deal of disappointment. The company’s revenue growth has not met the anticipated levels in the past two years. Despite the considerable productivity benefits of AIP, the revenue growth achieved was decent but did not reach the initial target of 30% annually.
Nevertheless, the recent quarter saw a significant increase of 27% in revenue and substantial productivity improvements for AIP clients, which could be leading to a positive impact on Palantir’s financial performance. Additionally, teaming up with Microsoft has the potential to help Palantir achieve or even exceed its previous revenue growth targets.
Certainly, Palantir may need to enhance its productivity growth even more to support its current valuation. However, as long as the company maintains its rapid revenue growth, the stock price may continue to rise despite its elevated price-to-earnings ratio.
