Palantir's AI Platform Fuels Commercial Growth and Record Earnings

Palantir stock has soared 1,900% in recent years, driven by the adoption of its artificial intelligence platform, which has attracted both government and commercial customers. Commercial sales are skyrocketing, with 485 U.S. customers and a record $843 million in contract value. The company's Rule of 40, which measures revenue growth and profit margin, is also impressive. However, one reason to sell is the high valuation of the company, which may make it difficult to sustain growth in the future.

Palantir Technologies (NASDAQ: PLTR) has been a standout performer in recent years, with its stock soaring by an astonishing 1,900% since 2019 [1]. This remarkable growth can be attributed to the company's adoption of artificial intelligence (AI) to enhance its software offerings, attracting both government and commercial customers.

One of the key drivers of Palantir's success is the skyrocketing commercial sales. In the latest earnings call, the company reported that its AI-driven platform, the Artificial Intelligence Platform (AIP), is driving the expansion of current U.S. commercial deals and the acquisition of new ones. Total U.S. commercial contract value climbed to a record $843 million, a 222% increase from the previous year. Currently, Palantir has 485 U.S. commercial customers, up from just 14 a few years ago. This significant growth indicates that the company's AI platform is in high demand, and there is still substantial room for expansion [1].

Another compelling factor is Palantir's impressive performance in balancing growth with profitability, as measured by the Rule of 40. This metric, which adds the company's revenue growth rate and profit margin, indicates Palantir's ability to generate profits while continuing to grow. In the latest quarter, Palantir's Rule of 40 totaled 94%, far surpassing the 40% threshold considered good by the software industry. This performance stands out, as only a third of companies reach the Rule of 40, and fewer maintain it over time [1].

However, the high valuation of Palantir's stock is a significant concern. The company's stock trades at 241 times forward earnings estimates, which is extremely steep, even for a growth company. This high valuation may limit further gains and could potentially stagnate or decline the stock price if investors become more cautious [1].

Given these factors, investors must carefully weigh the pros and cons before making a decision. While Palantir's commercial sales and profitability are impressive, the high valuation could be a barrier to sustained growth. For long-term investors aiming to hold onto the stock for at least five years, the high valuation may not significantly impact potential gains. However, for those looking to buy and sell within a few weeks or months, Palantir may be too risky due to its steep valuation.

References:
[1] https://www.nasdaq.com/articles/2-reasons-buy-palantir-and-1-reason-sell