The company is benefiting from AI, but its stock comes with a hefty price tag.
Palantir‘s (PLTR -0.05%) share price has soared 162% over the past year as the company has benefited from demand for its artificial intelligence (AI) technology. But those gains have left many investors wondering if there’s any more room for Palantir to run and where the company could be a few years from now.
Here’s what’s going well with the company right now and where Palantir could be in three years.
What’s going well for Palantir
If you’ve been keeping up with Palantir, then you know that for years the company has been a leading player in the AI software space, with a specialty in the government sector. Palantir’s analytics systems have helped the military and intelligence organizations make use of vast amounts of data.
Sales from Palantir’s government segment rose 24% in the second quarter to $278 million. But Palantir has expanded its AI reach into the commercial market over the past few years, and the move is already paying off. Revenue from its commercial segment increased 33% to $307 million in the quarter and now accounts for 45% of total sales.
Management says that its U.S. commercial sales are expected to rise 47% for the full year to $672 million, a substantial increase and a good indicator that its commercial services are resonating with customers.
If all of that weren’t good enough, Palantir is also profitable and reported $135.6 million of net income in the quarter, with an impressive profit margin of 20%. To top it off, the company has just $1.1 billion in debt.
How Palantir could benefit over the next three years
Palantir bulls point to the company’s current growth and rapidly expanding AI market as reasons for optimism. For example, analysts estimate Palantir’s sales will grow about 25% this year and 21% in 2025, with one analyst projecting the company’s sales to reach $5 billion in 2027 — more than double last year’s sales.
This confidence in Palantir’s potential growth is fueled by an estimated $1 trillion in artificial intelligence spending in the next few years, according to Goldman Sachs estimates.
I think Palantir is well-positioned to benefit from at least some of this spending. Companies of all shapes and sizes are looking to establish themselves as AI leaders, or at least AI-competent, and that’s going to lead to a massive increase in spending to keep up with rivals.
Is Palantir a buy right now?
I think opening a position in Palantir could pay off in the coming years as AI investments ramp up and the company taps into an expanding customer pool. However, investors should know that the company’s stock is pricey, with its shares having a forward price-to-earnings ratio of 90 right now.
That means that cautious investors may want to wait until there’s a pullback in Palantir’s stock to pick up shares or find an AI stock with a cheaper price tag.
Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Palantir Technologies. The Motley Fool has a disclosure policy.
