THE S&P500 (INDEXSNP: ^GSPC) is widely considered the best barometer of the entire U.S. stock market. The index tracks 500 domestic companies that meet specific inclusion requirements regarding market value, profitability and liquidity.
Last month, Global S&P announced that Palantir Technologies (NYSE:PLTR) would be added to the S&P 500 on September 23. Dan Ives of Wedbush Securities called it “a validating moment for the Palantir story.” Shares are up 22% since the announcement, but one analyst still sees huge upside potential on the horizon.
Hilary Kramer, portfolio manager at Greentech Research, recently told Fox Business that Palantir could be a $100 stock in the future. While she didn’t discuss a specific timeline, her forecast implies a 170% upside from the current stock price of $37.
Here’s what investors should know.
Palantir is a market leader in artificial intelligence platforms
Palantir’s leading platforms, Foundry and Gotham, enable businesses to capture data, develop machine learning (ML) and integrate these assets into an ontology. Ontology defines the relationships between digital information and its real-world counterparts. Users can interact with the ontology through analytical applications to improve decision-making. Palantir says its ontology layer is a “key differentiator.”
In 2023, Palantir launched its Artificial Intelligence Platform (AIP), adding support for major language models and generative AI for Foundry and Gotham. Experts praised the product. In August, Forrester Search recognized Palantir as a leader in AI/ML platforms, highlighting its strengths in data ingestion and preparation, as well as intuitive user interfaces and automation. “Palantir is quietly becoming one of the largest players in this market,” the analysts write.
This bodes well for Palantir and its shareholders. The International Data Corp. (IDC) expects AI platform sales to grow 51% annually through 2028.
Palantir Sees Relentless Wave of Demand for AIP
Palantir delivered a strong performance in the second quarter, beating estimates on both revenue and earnings. Revenue rose 27% to $678 million and non-GAAP net income soared 80% to $0.09 per diluted share. CEO Alex Karp said: “Our continued earnings growth reflects the rampant demand and understanding of the capabilities of our software. » Management also raised its full-year guidance, such that revenue is now expected to grow 23% in 2024.
Karp also commented on AIP in his letter to shareholders. “Our flagship Artificial Intelligence Platform (AIP) was launched just over a year ago. And it has already transformed our business,” he wrote. “Our growth in commercial and government markets has been driven by a relentless wave of customer demand for artificial intelligence systems that go beyond the merely performative and academic. »
Palantir has continued to make headlines since the end of the quarter. In September, it expanded its relationship with a longtime client P.A.; The oil and gas company will deploy AIP to improve operational efficiency. Additionally, Bloomberg reported that the U.S. government awarded Palantir a $100 million contract that will make its AI targeting tools available to more military personnel.
Palantir shares are trading at a very high valuation
Palantir is an interesting company with a strong presence in a rapidly growing industry, but its valuation is stratospheric. Wall Street expects Palantir’s adjusted earnings to grow 22% annually through 2025. Meanwhile, the stock trades at 115 times adjusted earnings.
These numbers result in a PEG ratio greater than 5. For context, PEG ratios of 1 or 2 are generally considered reasonable. This means that Palantir stock is outrageously expensive at its current price. Not surprisingly, Wall Street analysts are generally bearish on the company. The stock’s median price target of $27 per share implies a 27% downside from the current stock price of $37.
Barring an extreme acceleration in earnings growth, I doubt Palantir will hit $100 per share in the near future. And I would personally avoid this stock until the valuation comes back to Earth. There are plenty of other stocks poised to benefit from the AI boom and trading at more reasonable prices.
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Trevor Jennevine holds positions at Palantir Technologies. The Motley Fool holds positions and recommends BP, Palantir Technologies and S&P Global. The Motley Fool has a disclosure policy.
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