Shares of Palantir Technologies (PLTR), an enterprise software company, keep climbing in 2024. PLTR stock has skyrocketed 103% year-to-date, far outpacing the S&P 500 Index’s ($SPX) roughly 16.7% gain.
In fact, Palantir has soared nearly 124% in the past year and a staggering 335% over two years, making it one of the top large-cap performers in the market.
Palantir’s rise can be attributed mainly to the booming demand for its Artificial Intelligence Platform (AIP). The company is seeing a surge in enthusiasm from U.S. commercial customers, with many adopting its AI tools to enhance their operations. This growing interest is expanding Palantir’s customer base and opening new opportunities in the fast-evolving enterprise AI market.
PLTR stock received an additional boost this week on news of its upcoming inclusion in the S&P 500. This inclusion added credibility to its business and caught the attention of more investors.
Palantir’s membership in the S&P 500 reflects confidence and the solid demand for AIP, suggesting that Palantir presents a way for investors to tap into the rapidly growing enterprise AI sector. However, the stock’s incredible rise has also made it quite expensive on the valuation front. With its valuation now elevated, there could be limited room for further upside in the short term.
So, should investors consider buying Palantir now, or is it better to wait for a dip before investing? Let’s take a closer look.
Palantir’s Strong Business Momentum
Palantir’s business has been thriving. In the second quarter of 2024, the company reported $678 million in revenue, a 27% increase from the same period last year. Revenue growth has been accelerating steadily over the past several quarters, fueled by the increasing adoption of AI in the enterprise software market.
AIP has led to several large contracts, including 27 deals worth $10 million or more and a total contract value (TCV) of nearly $1 billion in Q2 alone. A significant portion of these deals came from existing customers expanding their use of Palantir’s solutions, showing strong customer loyalty. The company’s top 20 customers generate an average of $57 million annually, a 9% increase year-over-year.
The U.S. commercial sector has been a key growth area for Palantir. In Q2 2024, its U.S. commercial revenue, excluding strategic contracts, surged 70% compared to the same period last year. The company’s annual contract value (ACV) in the U.S. also grew strongly, rising 44% year-over-year and 19% sequentially. Palantir continues to sign new deals while expanding its relationships with existing ones, particularly in high-value production use cases, all of which provide a solid foundation for future growth.
Financial Strength and Future Outlook
Palantir’s financial position remains solid. Its total remaining deal value is $4.3 billion, up 26% year over year. Its remaining performance obligations, essentially future revenue commitments, grew 41% to $1.4 billion.
Palantir’s net dollar retention rate was 114%, up 300 basis points, highlighting its ability to generate higher revenue from its existing customers.
Looking forward, Palantir’s focus on AI and the massive potential of the AI-driven enterprise market offers significant growth opportunities. With strong operating metrics and a growing customer base, Palantir is well-positioned to capitalize on this booming sector.
Should You Buy PLTR Stock Now?
Palantir has shown impressive growth and has strong future potential, making it an exciting stock to invest in. However, its currently high valuation is a cause for concern. While Palantir’s growth prospects suggest it deserves a premium, the stock trades at a price-to-sales (P/S) ratio of 34.99 — far above the sector median of 2.76. This steep valuation is one key reason why many analysts remain cautious on the stock, with Palantir receiving a consensus rating of “Hold.”
Wall Street's average price target is $24.44 for PLTR, indicating a potential downside of about 30% from current levels.
The consensus “Hold” rating and the stock's massive rally indicate that the positives are priced into PLTR, leaving limited room for further upside in the short term.
For long-term investors willing to ride the AI wave, and who believe Palantir can lead in this space, buying shares on a pullback could be a strategy worth considering.
On the date of publication, Amit Singh did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
