Palantir (PLTR 1.55%) has taken off this year. After flirting with record lows at the end of last year, the stock climbed steadily higher in 2023, eventually making a 170% yearly gain.
However, such increases may change the stock’s value proposition, leading to questions about whether it can continue growing in 2024. A closer look at this stock may help investors answer this question.
The current state of Palantir
Admittedly, the long-term stock performance and financials may discourage new investors from buying the stock. Palantir launched its initial public offering (IPO) in September 2020 during a bull market. Like numerous tech stocks, initial optimism gave way to a massive sell-off, leading to the stock losing as much as 87% of its value. Even now, Palantir stock sells at a discount of more than 60% from its $45 per share high in early 2021.
Also, its current financials are respectable but likely insufficient to draw many tech growth investors by themselves. In the first three quarters of 2023, its revenue of $1.6 billion rose 16% compared with the same period in 2022.
Palantir shareholders might also remember in 2021 when CEO Alex Karp forecasted a 30% revenue growth rate in the 2022-2024 time frame. The company’s performance is well short of those expectations.
Moreover, while Palantir is newly profitable, the 71 forward price-to-earnings (P/E) ratio may give investors second thoughts. Also, even when measuring valuation by the price-to-sales (P/S) ratio of 19, investors may assume the stock is more likely to fall than rise.
Why it might rally
However, looking at the business could leave investors wondering whether a considerable improvement is about to occur. Leading the way in artificial intelligence (AI) has made the company a leader in big data.
It began by serving national security and law enforcement entities through Gotham. However, the limited client base on the government side prompted it to develop a commercial version of the software, called Foundry. Foundry helps businesses make better decisions and solve problems, and Forrester estimated Foundry delivers a 315% return on investment (ROI) for its users.
Moreover, that ROI does not consider its Artificial Intelligence Platform (AIP). The AIP applies generative AI to data sets, supporting the activities of both Gotham and Foundry.
The AIP Bootcamps delivered impressive results. On the Q3 2023 earnings call, chief business affairs officer and chief legal officer Ryan Taylor reported eye-popping productivity gains from AIP. One client reported accomplishing more in one day with AIP than a hyperscaler had done in four months. Another claimed to build 10 times faster with 3 times fewer resources.
Admittedly, Palantir did not name the clients or get into many specifics when making its claims. Still, the ability to drive such results gives Palantir tremendous power in the marketplace, indicating it could far exceed the 30% revenue growth rate estimated in 2021.
Furthermore, in 2021, Palantir was not the profitable company it is today. With such technology dramatically increasing the company’s net income, the gains could cause the stock to skyrocket.
Should I buy Palantir in 2024?
Given Palantir’s recent and prospective growth, investors have many reasons to believe its growth could continue in 2024 and likely even beyond. Palantir has a long track record of leveraging AI to deliver analytical insights. Those productivity gains could increase exponentially with the reported gains of AIP Bootcamp participants.
These potential gains make Palantir’s future growth difficult to measure. Nonetheless, one can assume the slower revenue growth and high P/S ratio are inaccurate reflections of how much the AI stock will grow in 2024. That potential bodes well for Palantir investors, who could see the stock return to record highs and beyond.
Will Healy has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
