Stock Market

Initially concentrated on defense and intelligence, Palantir Technologies (NYSE:PLTR) has broadened its clientele to the healthcare, energy, and finance sectors. Noteworthy profitability and advancements in AI analytics make PLTR stock an appealing choice for investors.

Despite the cooling of ‘AI mania,’ Palantir Technologies continues to hold firm, with shares not far below their 52-week highs. Analysts express confidence in Palantir’s AI potential, although some view recent enthusiasm as excessive.

The Bull Case

Palantir Technologies began in defense and intelligence but broadened its client base to healthcare, energy, and finance. With profitability and advanced AI tools, Palantir stock has garnered investor confidence.

In recent years, Palantir’s revenue surged, hitting $1.9 billion in 2022, up by 23.6% from 2021. Originally serving the U.S. Intelligence Community, Palantir now provides potent data analytics tools, specializing in AI and ML, aiding enterprises and government agencies in extracting insights from their data. Platforms like Foundry and Gotham leverage AI and ML for data integration, analysis, and visualization, offering diverse analytics services for potential expansion into new markets.

Additionally, in a dynamic year marked by collaborations, Palantir teamed up with CalypsoAI, an AI security firm, leveraging Palantir’s FedStart program. FedStart, offering a head start for SaaS companies in government service provision, facilitated CalypsoAI’s role in securing sensitive data on large language models and validating generative AI tool safety. Palantir USG President Akash Jain praised CalypsoAI as a pioneer in AI Security, aligning with Palantir’s commitment to delivering cutting-edge software to the U.S. government efficiently.

The Bear Case

I have been firm with my bearish sentiments against Palantir. Analysts also foresee Palantir’s AI platform as a key revenue source, but concerns arise about its growth strategy implementation. Achieving a GAAP profit could lead to S&P 500 inclusion, impacting share price. However, Morningstar questions the execution track record of Palantir’s executive team.

On top of that, let’s not forget about its extreme cash burns. In my previous PLTR article, I mentioned Palantir experienced significant cash outflows, using $165 million in operations, a 323% increase from 2018 despite a 25% revenue boost. High costs, totaling 105% of revenue, contributed to its challenge in achieving profitability after 17 years.

Palantir’s robust recent earnings are noted, but analyst Brian White highlights commercial activity’s sensitivity to economic fluctuations and unpredictable government deal timing. Caution is advised, especially with PLTR stock trading at 80 times forward earnings.

Always Think Long-Term

Despite claims of Palantir’s AI advantage, analysts project modest revenue and earnings growth in 2024, around 19.4% and 16%, respectively. This falls short of justifying PLTR’s high forward valuation, and I think Palantir remains a company growth investors need to view cautiously at these current levels.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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