Palantir Technologies (NYSE:PLTR) stock surged to around $25 per share in February, and has since languished at this price level. Concerns about the company’s future mostly surround valuation and potential downsides of staying in. Admittedly, shares in this AI enterprise software powerhouse do appear “priced for perfection.”
However, don’t assume that means that a sharp and sudden fall is imminent. In fact, don’t assume that this stock is primed for a massive fall at all. While seemingly pricey at 76.2 times forward earnings, subsequent results could help shares not only sustain their valuation, but add to it as well.
PLTR Stock: Bullishness and Bearishness
Palantir was a popular growth story before the generative AI revolution took shape early last year. For many years, this company has built a solid reputation as a leading provider of data analytics software for both governmental and commercial clients.
However, while already well-positioned for continued growth, the AI growth trend stands to serve as an accelerant. Palantir quickly capitalized on the gen AI trend, with the launch of its Artificial Intelligence Platform about a year ago. The payoff for PLTR stock has been immediate.
Since the AIP launch, shares have surged by around threefold. Nevertheless, with this big burst of bullishness, a cloud of bearishness for PLTR has also emerged.
In the eyes of the bears, PLTR’s AI rally is merely a matter of hope and hype. Speculators have priced-in this catalyst, and then some. The market can often jump to conclusions too quickly.
Even so, the aforementioned fiscal results indicate there is great substance to the AI growth story with Palantir.
Yet even as the bears can concede this high growth is happening, but counter that it’s already priced-in, looking beyond just earnings forecasts, even this argument becomes debatable.
Three Factors That the Skeptics Fail to Consider
Whether leaning bearish or full-on shorting PLTR stock, investors who believe the market has gone overboard with “Palantir mania” are failing to take three important factors into account.
First, much like Nvidia (NASDAQ:NVDA) has the early mover’s advantage in AI chips, Palantir has the same edge in AI powered data analytics software.
Even if competition is rising in this space, as InvestorPlace’s Larry Ramer recently pointed out, said competition may be less severe than feared. Larger enterprise software firms will need to play some serious catch up, as Palantir quickly wins over new clients thanks to AIP.
Second, client growth points to further growth acceleration. Palantir’s growth last quarter may have impressed the market, growth could come in at even more impressive levels in the coming quarters.
For instance, last quarter, while overall commercial revenue grew 32%, commercial customer count, a leading indicator, increased by 55%. AI adoption could also lead to a resurgence in governmental software sales growth down the road.
Third, despite forecasts calling for moderate earnings growth, I wouldn’t rule out the possibility of outsized earnings growth a few years from now. Why? It’s all about when Palantir takes its foot off the growth pedal.
The Verdict: Don’t Fade Palantir, Fade the Bears Instead
Like with other successful growth stories, Palantir is putting revenue/market share growth ahead of maximizing profitability. In the short-run, this could frustrate investors that place a lot of importance on metrics like price-to-earnings.
In the long-run, however, deferring earnings maximization could prove very much worth it. Down the road, once Palantir matures and reaches scale, it can, like we put it above, take its foot off the growth gas pedal.
This, in turn, could lead to a period of outsized earnings growth. This increase could not only justify a move back to PLTR’s past high water mark above $35 per share. A move to even loftier price levels could be within reach.
With this in mind, strongly suggesting the bears could ultimately regret their current stance, don’t fade PLTR stock. Fade the bears instead, by making this stock a buy.
PLTR stock earns an A rating in Portfolio Grader.
On the date of publication, Louis Navellier had long positions in PLTR and NVDA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
