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Palantir (PLTR) has been one of the best-performing large-cap stocks in 2024, registering a stellar gain of about 138.5% year-to-date, far exceeding the S&P 500 Index's ($SPX) gain of 20.1%. Palantir’s meteoric rise is largely fueled by soaring demand for its Artificial Intelligence Platform (AIP).
In addition to solid demand for its products, Palantir’s recent entry in the S&P 500 provided another boost to its stock price.
Although Palantir stock has already gained substantially year-to-date, at least one Wall Street analyst expects the enterprise software company’s stock to reach $50, the Street-high price target. Let’s explore why.
Palantir’s Solid Growth Could Boost Stock
Palantir has been firing on all cylinders with solid momentum in its U.S. commercial and government businesses. With stellar sales growth and strong unit economics, which are expanding its operating margin, Palantir stock could rise further.
In the second quarter of 2024, the company’s top line jumped 27% year-over-year and 7% sequentially. What stands out is that Palantir’s revenue growth has been accelerating steadily over the past several quarters, driven by the increasing adoption of artificial intelligence (AI) in the enterprise software market. Further, the company delivered this tremendous top-line growth while expanding its adjusted operating margin to 37%, highlighting its solid underlying unit economics.
A key contributor to this growth is Palantir’s AIP, which has been instrumental in securing large contracts. In Q2 2024 alone, the company landed 27 deals valued at $10 million or more, resulting in a total contract value (TCV) of nearly $1 billion. Notably, a significant portion of these contracts are from existing customers, which shows its ability to drive customer retention and higher average revenue per customer.
Customer numbers also continue to grow. Palantir’s customer base increased by 41% year-over-year, reaching 593 by the end of the second quarter. Revenue from its top 20 customers grew 9% from the previous year, generating an average of $57 million per customer.
By segments, the U.S. commercial business has been a significant driver of Palantir’s growth. In Q2 2024, the company’s U.S. commercial revenue soared by 33% compared to last year's quarter. Additionally, this segment's annual contract value (ACV) grew by 44% year-over-year. The high demand for Palantir’s AIP solutions from new and existing clients sets the stage for future growth.
Palantir’s government segment is also thriving. Government-related revenue increased by 23% year-over-year and 11% sequentially. The rising demand for Palantir’s government software offerings suggests further growth potential in this area.
Overall, Palantir’s solid momentum across its U.S. commercial and government segments, strong unit economics, higher adoption of AIP, and notable increases in contract value and customer count will likely support the uptrend in the stock.
Palantir’s Key Metrics Remain Strong
Palantir is demonstrating solid growth, with key performance indicators pointing to continued strength. By the end of Q2 2024, the company’s total remaining deal value reached $4.3 billion, a 26% increase year-over-year. Moreover, its remaining performance obligations, an indicator of future revenue, surged by 41% to $1.4 billion.
Palantir’s net dollar retention rate also improved by 300 basis points to 114%, highlighting its ability to maintain revenue from existing customers.
Looking ahead, Palantir's focus on AI and the growing AI-driven enterprise market presents significant growth opportunities. The recent launch of Warp Speed, a modern manufacturing operating system, is expected to further accelerate its growth.
With strong operating metrics, a growing customer base, and new product launches, Palantir is well-positioned to deliver solid growth in the upcoming quarters.
Can PLTR Stock Hit $50 Per Share?
PLTR’s performance in 2024 has been impressive, and the company shows no signs of slowing down. With its AI platform continuing to attract new customers and larger deals from existing ones, Palantir is positioned for further growth. Its strong unit economics, increasing contract value, and expanding customer base all point to continued momentum in the stock.
However, for PLTR stock to hit the $50 mark, it would need to rise by another 22% from its current price. While the company's growth story is compelling, much of the optimism is already baked into the stock price. Palantir's price-to-sales (P/S) ratio currently stands at an eye-popping 31.58, significantly higher than its historical average and the sector median of 2.9. This lofty valuation is a primary reason why most analysts don’t foresee the stock reaching $50 anytime soon.
Palantir stock has a “Moderate Sell” consensus rating among analysts, and Wall Street's average price target is $25.87. This suggests a potential downside of about 36.8% from current levels.
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.
