This year again, artificial intelligence (AI) remains the driver of tech sector gains, just as it was in 2023. While the wildly popular “Magnificent Seven” group of mega-cap stocks continues to be a favorite among Wall Street analysts and investors, many smaller players are also emerging to capitalize on this exciting niche.
Valued at $55 billion by market capitalization, Palantir Technologies 
PLTR is popular for its data integration and analytics platforms, including Gotham and Foundry. Gotham focuses on government and intelligence use cases, while Foundry serves commercial customers.
The company’s AI-based capabilities have driven its stock price up 167% in the past year, compared to that of the S&P 500 Index. 
SPX gain of 25%. Palantir’s recent robust fourth-quarter results also piqued market interest, sending its shares up another 42% since the start of the year.
Although overall Wall Street sentiment toward PLTR stock is relatively bearish, in part due to its high valuation, some experts believe it is an undervalued AI stock with excellent long-term prospects.
Palantir’s AIP Platform Drives Exceptional Growth
Palantir’s AIP, or artificial intelligence platform, has been behind the company’s recent financial and stock market gains. The platform facilitates the analysis of large amounts of data for various industries to discover patterns and insights needed for decision-making. In the annual letter to shareholders, CEO Alex Karp said AIP’s “momentum is now significantly contributing to new revenue and new customers” for the company.
In the fourth quarter, total revenue jumped 20% year over year to $608 million, while full-year revenue increased 17%. to reach $2.23 billion from 2022. It also reported GAAP (generally accepted accounting principles) profit of $93 million. its fifth consecutive profitable quarter. Notably, Palantir is eligible for inclusion in the S&P 500 Index, having met the requirement of being profitable for four consecutive quarters.
Palantir’s extensive involvement with government agencies has been a significant driver of its growth. Government procurement accounts for 54% of its total revenue, providing a steady income stream. It also contributes to Palantir’s reputation as a provider of powerful and secure data solutions. However, some risks include controversial government projects or reduced defense budgets.
Currently, Palantir has a, three-year contract worth $250 million with the US Department of Defense to provide AI data analytics services. The company has other collaborative agreements with foreign government agencies. In the fourth quarter, the company generated $324 million in government revenue, an 11% year-over-year increase. For the full year, revenue from this source increased 14% to $1.2 billion.
Although government contracts remain a key part of Palantir’s business, the company has actively expanded its portfolio to include commercial clients from a variety of industries. The Commercial segment generated $284 million in revenue, an increase of 32% year-over-year. The U.S. commercial market, in particular, grew 70% year-over-year to $131 million.
The Commercial segment is growing rapidly, accounting for 46% of total revenue. Last year, the company entered into strategic collaborations with CAZ Investments and PwC, which could further boost the segment this year.
Management expects U.S. commercial revenue to grow 40% in 2024 to $640 million, which would result in total revenue of $2.65 billion to $2.69 billion for the whole year. This would represent year-over-year growth of 18-20%. At the same time, analysts expect revenue of $2.67 billion and earnings growth of 30.5% to $0.33 per share.
Despite its rapid growth, the company maintains a strong balance sheet, which is impressive. Palantir had a cash balance of $3.7 billion (cash, cash equivalents, and U.S. Treasury bills) at the end of 2023. It also generated $731 million in adjusted free cash flow (FCF) in 2023 and expects to generate between $800 million and $1 billion in 2024.
Analysts expect Palantir’s revenue and earnings to grow 20.5% and 20.4%, respectively, in 2025. Most analysts consider the stock to be quite expensive, trading at 64 times forward earnings and 17 times forward earnings. forward sales.
Wall Street’s opinions are mixed on PLTR
Recently, HSBC analyst Stephen Bersey changed his stance on PLTR to “neutral” due to its high valuation. The analyst is, however, impressed by the company’s AI strategies and growth prospects. Bersey has a $22 price target for PLTR.
Meanwhile, Citi analyst Tyler Radke upgraded PLTR from “sell” to “hold” following the company’s strong quarterly results, which demonstrated solid profitability. The analyst also raised the stock’s target price to $20, as Tyler said: “US trade strength is getting harder to ignore.”
Similarly, Jefferies’ Brent Thill also upgraded the action from “sell” to “hold”, impressed by the company’s AIP platform. BofA Securities analyst Mariana Perez Mora shared the same optimism, reiterating her “buy” rating and increasing the target price to $24. from $21.
As Palantir stock soars again, the overall analyst stance remains skeptical, with a consensus rating of “hold.” Of the 13 analysts covering the stock, two rate it a “strong buy”, one rate it a “moderate buy”, five rate it a “hold”, one suggest a “moderate sell” and four Analysts recommend a “strong buy”. sell.”
Palantir surpassed its average target price of $17.54. Its lofty price target of $30 implies 22.7% upside potential over the next 12 months.
Here’s Why PLTR is the Best Underrated AI Stock to Pick Now
The AIP platform is still in its infancy and has not yet revealed its full potential, which could increase revenues and profits in the coming years. Alex Karp emphasized: “AIP is the future of our business and we believe it will become the dominant platform for the entire industry. »
As Palantir continues to expand its reach in government and commercial sectors, diversify its AI offerings, and explore global markets, the future looks bright. It might be worth paying the premium.
As of the date of publication, Sushree Mohanty had (directly or indirectly) no position in any of the securities mentioned in this article. All information and data contained in this article are for informational purposes only. For more information, please see Barchart’s disclosure policy here.
