Toward the end of 2022, Palantir (NYSE:PLTR) stock traded at closing lows of $6. With the big recovery coming from Q2 of fiscal year 2023, Palantir stock has surged by 398% from the lows and trades at $30.01. I am bullish on the company’s fundamental growth story and believe its stock will continue an uptrend.
If we look at the year-over-year (YOY) revenue growth pattern, it speaks volumes about the big comeback by Palantir. For Q2 FY21, the company reported YOY revenue growth of 49.1%. Growth continues to decelerate and bottomed out in Q2 FY23 at 12.7%. For Q2 FY24, Palantir reported revenue growth of 27.2%.
Notably, Palantir stock trades at a forward P/E of 81.9, so valuations seem stretched. However, the growth trajectory is likely to remain robust, and with potential margin expansion, the premium is justified. Let’s examine the major catalysts for growth that makes PLTR stock a good long-term investment.
Strong Q2 FY24 Results
Recently, Palantir reported results for Q2 FY24, highlighting multiple positives. First, the company’s revenue increased by 27% YOY to $678 million. This was backed by growth in government as well as commercial revenue.
Further, Palantir reported adjusted free cash flow of $149 million for the quarter. Additionally, PLTR has guided for adjusted FCF of $800 million to $1 billion for the year. Considering the revenue momentum, it’s likely that the firm will continue to swell in the next few years.
Fundamentally, Palantir ended Q2 with cash and equivalents of $4 billion. This provides the company with ample flexibility to invest in innovation. Considering the trend for the first two quarters of 2024, Palantir is positioned to invest $450 to $500 million in 2024 towards R&D.
Revenue Growth Likely to Accelerate
I mentioned at the onset that Palantir has witnessed continued acceleration in top-line growth in the last few quarters. I expect this trend to sustain, and this will ensure that Palantir stock momentum remains bullish.
One reason for Palantir’s growth acceleration is the AIP bootcamps. Since its launch in mid-2023, Palantir has completed AIP bootcamps with 1,205 organizations globally. The initial bootcamps have translated into deals, and the U.S. commercial business has seen growth traction.
Moreover, Palantir reported customer count of 593 as of June. And YOY, the customer count swelled by 172. Also, in the last three years, U.S. commercial customer count has swelled by 9x.
During Q2 FY24, the company closed 96 deals of at least $1 million of which 27 deals were more than $10 million. Robust client addition coupled with robust government order inflows will ensure that the growth momentum is maintained.
Bottom Line: Ample Headroom For Growth And Cash Flow Upside
Palantir has been successful in bringing AI applications from prototype to production in quick time. The company continues to partner with the corporate sector globally to integrate the power of AI into respective businesses.
With aggressive bootcamps, Palantir has reduced its dependence on U.S. government contracts. Government clients made up 54% of total sales in Q2 FY24. I expect U.S. commercial client sales to continue increasing as a percentage of total sales.
Importantly, Palantir has been successful in scaling-up profitability. In the next 24 to 36 months, the technology company is likely to generate annual adjusted free cash flow of $2 to $3 billion.
Overall, with potential for expansion outside the U.S. and with a swelling client base, Palantir stock is a value creator. I would look at small corrections as an opportunity to accumulate.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
