Palantir Stock: Time to Buy the Dip or Wait for a Better Entry Point?

Palantir Technologies (PLTR) stock has taken a 10% dip to start 2025, raising the question: is now the time to buy this explosive AI stock, or should investors wait for a better entry point? Let's dive into the data and analysis to help you make an informed decision.

Palantir's Strong Fundamentals

Palantir's financial performance and growth prospects have significantly improved over the past year. In the third quarter of 2024, the company reported a 30% year-over-year increase in revenue to $726 million, marking the fifth consecutive sequential acceleration in revenue growth. Additionally, Palantir's customer count increased by 39% to 629, with the number of commercial customers growing at a faster pace of 51%. The company's total contract value (TCV) increased by 33% year over year in Q3 2024, outpacing its actual revenue growth, and its net dollar retention rate increased by 11 percentage points year over year to 118% in the last reported quarter.



Analysts' Bearish Sentiment

Despite Palantir's strong fundamentals, only six stocks in the S&P 500 have a higher percentage of sell ratings than Palantir, and the median price target of $39 per share implies a 45% downside from its current price of $71. This bearish sentiment is surprising, given Palantir's impressive growth prospects in the AI market.

Key Catalysts for Palantir's Long-Term Growth

Palantir's long-term growth prospects are driven by several key catalysts:

1. Growing adoption of AI by government agencies: Palantir has secured several contracts with government agencies, including the U.S. Army, demonstrating its leadership in AI solutions for the public sector. The increasing demand for AI solutions in the government sector is a positive sign for Palantir's long-term growth.
2. Expansion of commercial business: Palantir's commercial business has been growing rapidly, driven by the increasing demand for AI solutions in various industries. The company's aggressive go-to-market strategy, including conducting "boot camps" to help customers integrate generative AI into their operations, has led to robust growth in Palantir's customer base and improved customer spending.
3. Strong financial performance: Palantir has consistently delivered strong financial performance, which is a testament to its robust business model and growth prospects. The company's revenue in the first nine months of 2024 stands at just over $2 billion, an increase of almost 27% from the same period last year. Palantir's net dollar retention rate and total contract value (TCV) have also improved significantly, indicating strong customer acquisition and retention.

Should You Buy Palantir Stock Now?

Given Palantir's strong fundamentals, key catalysts for long-term growth, and the bearish sentiment among analysts, is now the time to buy Palantir stock? While the company's valuation may seem expensive at 200 times adjusted earnings, its forward earnings multiple of 79 points toward a big improvement on its bottom line over the next year. Additionally, Palantir's forward earnings multiple for the following year is even lower, suggesting that the company is expected to maintain its earnings growth momentum.

However, investors should be cautious with Palantir stock now, as its current valuation is unsustainable. Unless Palantir exceeds Wall Street's earnings estimates by wide margins, the stock could experience a material correction in the coming months. It is essential to wait for a more attractive entry point before investing in Palantir stock.

In conclusion, while Palantir's strong fundamentals and growth prospects make it an attractive long-term investment, the current dip in its stock price may not be the best entry point for investors. It is essential to wait for a more attractive valuation and a clearer picture of the company's earnings growth trajectory before making a decision to buy Palantir stock. Keep an eye on Palantir's financial performance and market developments to identify the optimal entry point for this explosive AI stock.