Is Palantir Technologies Stock a Buy?
Excitement regarding the vast potential for artificial intelligence (AI) has kicked into high gear since early last year, sparking something of an AI gold rush. The potential to automate time-consuming tasks and increase productivity is an intriguing proposition for most companies, but many simply don't know where to start.
That's not a problem for Palantir Technologies (NYSE: PLTR) customers. For more than two decades, the company has been developing customized AI solutions for U.S. government agencies and their allies. This experience and know-how gave Palantir the ability to create a novel solution that helps businesses get AI solutions up and running quickly. That strategy has already begun to pay dividends and is getting rave reviews from customers.
The AI advantage
The potential represented by AI is undeniable and has vast potential to help businesses improve processes and drop more profits to the bottom line. Generative AI has already demonstrated the capacity to automate repetitive tasks, saving time and freeing up staff for more important matters. Some of these applications are already well documented:
Summarize emails and draft potential responses.
Create presentations or charts from company data.
Search company files or the internet for information.
Create original documents or revise existing ones.
Write or review computer code.
Generate complex spreadsheet charts with a few simple prompts.
To be clear, these AI-powered tools can only assist people and are certainly not ready to take on most tasks themselves. But in so doing, they can save business time and, ultimately, money.
Removing the guesswork
The one drawback to these systems is that there's no one-size-fits-all solution. Every business is unique and faces different challenges. However, if asked, most companies could quickly identify the issue they'd most like to address. That's where Palantir comes in.
The company's Artificial Intelligence Platform (AIP) allows users to "dramatically accelerate" the development of "high-value" mission-critical use cases. Palantir hosts boot camps that provide "immersive, hands-on-keyboard sessions [that] allow new and existing customers to build live alongside Palantir engineers, all working toward the common goal of deploying AI in operations." This reportedly helps businesses "go from zero to use case in just one to five days." Palantir says it has a "growing backlog of AIP Bootcamps due to the overwhelming demand."
Demand to attend these sessions has been off the charts. The company quickly sailed past its initial goal of hosting 500 AIP boot camps during the year, conducting 660 during the past quarter alone. During Palantir's earnings call, Chief Revenue Officer Ryan Taylor illustrated the value of these sessions: "As one example, a leading utility company signed a seven-figure deal just five days after completing the boot camp. Another customer immediately signed a paid engagement after just one day of their multi-day boot camp and then converted to a seven-figure deal three weeks later."
He further noted that "while Q1 is seasonally our slowest quarter," U.S. commercial revenue grew 40% year over year, while U.S. commercial customers grew 69%. Furthermore, Palantir said it expects growth in the segment of at least 45% for the full year, up from its guidance of 40% issued last quarter.
Waning demand?
Fairweather investors sold off Palantir stock in the wake of its first-quarter report, but that may have been a costly mistake. While growth in the U.S. commercial segment slowed to 40% from 70% growth in Q4, that's mostly explained by seasonality and the lumpiness inherent in closing these types of deals. The increase in the full-year forecast is more indicative of what the future could hold.
Some investors might be put off by Palantir's lofty valuation, which stands at 64 times forward earnings and 14 next year's sales. However, those multiples shouldn't be viewed in a vacuum as they fail to factor in the company's accelerating growth trajectory. When measured using the forward price/earnings-to-growth (PEG) ratio -- which takes that growth into account -- the multiple is less than 1, the standard for an undervalued stock.
Palantir has decades of expertise in the field and a go-to-market strategy that's second to none. That, combined with strong secular tailwinds, illustrates why Palantir stock is a buy.
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Danny Vena has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
Is Palantir Technologies Stock a Buy? was originally published by The Motley Fool
