Skip to content

Introducing the Latest Entree into the S&P 500. This Equity has seen a remarkable surge of 845% since the commencement of last year, and a prominent Wall Street Analyst advocates for its continued investment value at present.

This distinguished AI trailblazer was extended an invitation to become part of the prestigious S&P 500 Index, following several years of noteworthy expansion.

Individual delightedly observing computer screen, expressing joy as stock market values increase.
Individual delightedly observing computer screen, expressing joy as stock market values increase.

Introducing the Latest Entree into the S&P 500. This Equity has seen a remarkable surge of 845% since the commencement of last year, and a prominent Wall Street Analyst advocates for its continued investment value at present.

The S&P 500 (^GSPC -0.39%) is often seen as the ultimate benchmark for the US stock market, containing the 500 largest publicly traded companies in the country. Its diversity of businesses makes it the most trustworthy indicator of overall market performance. A company aiming to join the S&P 500 must adhere to certain criteria:

  • Be an American company
  • Have a market value of at least $18 billion
  • Be highly tradable
  • At least 50% of its shares must be publicly available for trading
  • Must be profitable based on generally accepted accounting principles (GAAP) in the latest quarter
  • Profitable in the previous four quarters combined

Palantir Technologies (PLTR -1.80%) is the most recent inclusion into the S&P 500, joining in September 23rd, making it one of the 11 newcomers this year. After the surge in generative AI last year, Palantir's stock has reportedly increased by 845%.

Despite the stock's astronomical rise, some investors are uneasy due to its high valuation. However, a Wall Street analyst virulently believes this is merely the beginning of Palantir's growth. Let's dissect what factors have propelled Palantir's extraordinary meteoric rise and if there's further room for expansion.

AI beyond tech giants

Palantir has been honing cutting-edge AI solutions for over twenty years. Initially, the company gained recognition for crafting sophisticated algorithms tailored for US intelligence, military, and law enforcement agencies. These systems became adept at connecting disparate data to hinder terrorist activities and bring criminals to justice.

Palantir has since expanded, applying its data mining capabilities to the enterprise sector. Now, its AI and analytics tools use data to solve real-world problems for companies.

As businesses yearned for practical AI solutions last year, Palantir quickly introduced its Artificial Intelligence Platform (AIP), a generative AI system crafted to deliver data-driven answers. The system uses in-house data to develop tailored solutions for its clients.

The Numbers Tell the Tale

One of the main challenges businesses face when adopting AI is lack of expertise. Palantir solved this issue by establishing a go-to-market strategy that effectively addresses the issue. The company organizes boot camp workshops that team customer reps with Palantir engineers, ensuring companies develop the AI solutions required.

Palantir's quarterly report is brimming with testimonials illustrating the success of its AIP, as well as evidence. In Q3, the company closed 104 deals worth at least $1 million, with 36 deals worth $5 million or more, and 16 deals worth more than $10 million. Many of these agreements were finalized within weeks of the customer attending a boot camp session.

Palantir's overall results paint a promising picture. Revenue grew 30% YoY to $726 million, and 7% QoQ. The company also reported an eighth consecutive quarter of profitability, a factor that contributed to its inclusion in the S&P 500.

Perhaps more telling is Palantir's U.S. commercial revenue, which includes AIP, which rose 54% YoY, and its customer base grew by 77%. This boost in remaining deal value (RDV) by 73% hints at the company's promising future prospects. It also signals that Palantir is progressively moving away from reliance on government contracts.

While there isn't a consensus regarding AI software's total addressable market, the available estimates can serve as guidance. In Ark Invest's Big Ideas 2024, Cathie Wood estimates that the AI software market could balloon to $13 trillion by 2030, and $37 trillion in a bull case. Given Palantir's expertise in the field and its success in implementing AI solutions for its clients, it's evident that the company's runway for growth is substantial.

A Bullish Outlook

Palantir's inflated valuation has it divided among Wall Street analysts. Of the 19 analysts covering the stock in October, six label it a buy or strong buy, seven describe it as a hold, and the remaining six give it an underperform or sell rating. Concerns over valuation are universal among the bears, but first impressions can be deceiving.

The stock's current multiples are 160 times forward earnings and 40 times next year's sales. However, its forward price-to-earnings-to-growth (PEG) ratio of 0.5 suggests that the stock is undervalued according to standard metrics.

I'm not alone in believing the stock represents a lucrative investment opportunity. After its inclusion in the S&P 500, Greentech Research analyst Hilary Kramer opined that Palantir "could undoubtedly become" a $100 stock. This forecast implies potential gains of 65% for investors compared to the stock's closing price on Wednesday.

The analyst asserts that the stock's robust and accelerating revenue and profit growth, in addition to an increasing backlog, are catalysts for a revaluation of the stock.

If you're among those who believe Palantir's value is overpriced, then the strategy of regular purchasing gives you a chance to assemble a stake gradually, buying more shares when the price-to-multiple ratio seems more enticing.

It's essential to acknowledge that Palantir Technologies might not suit every investment portfolio. Nevertheless, for those with a long-term investment perspective and a robust mental fortitude, Palantir is tapping into a colossal opportunity within the AI sector. This untapped potential could result in substantial profit for investors.

It's important to consider the potential for future growth in Palantir's AI sector, given its inclusion in the S&P 500 and the vast market for AI software predicted by analysts. For instance, Ark Invest's Cathie Wood estimates that the AI software market could reach $13 trillion by 2030, and $37 trillion in a bull case.

Investors interested in Palantir might consider a strategy of regular purchasing. Buying shares gradually when the price-to-multiple ratio seems more appealing can allow investors to assemble a stake over time. This approach can help mitigate the risk associated with Palantir's high valuation.

Read also:

    Comments

    Latest