Palantir Technologies Inc. (PLTR) builds and deploys software platforms for the intelligence community to help with counterterrorism investigations and operations. In the last reported quarter, the company surpassed analyst revenue and earnings expectations. PLTR reported revenue of $678.13 million, topping analysts’ estimate of $652.42 million, and its EPS of $0.09, which also surpassed analysts’ estimates.

Palantir caters to a wide range of customers, including government and other commercial organizations. During the second quarter, its US government revenue showed growth of 24% year-over-year to $278 million, and its commercial revenue grew 33% year-over-year to $307 million. Also, the company finalized 27 deals worth over $10 million, and its customer count rose 41% year-over-year.

In the recent period, PLTR entered into multiple strategic partnerships with companies, including Microsoft (MSFT), BP (BP), and Tree Energy Solutions, to accelerate their AI-integrated solutions and operations. Also, the company has contracted to provide data integration and AI solutions to drive digital transformation for customers.

PLTR is among the enterprises that have benefitted exponentially from the Artificial Intelligence (AI) revolution. Last year, it launched its Artificial Intelligence Platform (AIP), which has helped the company achieve faster sales growth. Also, with the solid growth trajectory of the Artificial Intelligence market, poised to grow at a CAGR of 35.7% to reach $1.34 trillion by 2030, Palantir’s prospects are promising.

However, rising competition and an increasing number of companies engaged in software development and innovations might affect PLTR’s market share and current market dominance.

Shares of PLTR have surged 41.3% over the past six months and 123.9% over the past year to close its last trading session at $34.91.

Let’s look at factors that could influence PLTR performance in the upcoming months.

Positive Recent Developments

On September 9, PLTR and BP extended their strategic relationship by entering into an enterprise agreement to introduce new artificial intelligence capabilities through Palantir’s AIP software. The new contract is built on a decade of deep collaboration that has created a firm foundation for BP’s oil and gas production operations using PLTR’s industry-leading software.

Through the collaboration, Palantir’s AIP software will help BP harness large language models (LLMs) to enhance and accelerate human decision-making with suggested courses of action through automated analysis of the underlying data.

On August 8, PLTR and Microsoft Corporation announced a significant advancement in their partnership to bring sophisticated and secure cloud, AI, and analytics capabilities to the U.S. Defense and Intelligence Community.

This first-of-its-kind integrated technology enables critical national security missions to operationalize Microsoft’s best-in-class LLMs through Azure OpenAI (AOAI) Service within PLTR’s AI Platform in Microsoft’s government and classified cloud environments.

Robust Financials

For the second quarter that ended June 30, 2024, PLTR’s revenue increased 27.1% year-over-year to $678.13 million, and its gross profit rose 17.1% year-over-year to $549.57 million. The company’s adjusted income from operations of $253.57 million reflects growth of 87.8% from the year-ago value.

In addition, the company’s adjusted net income attributable to common stockholders and adjusted EPS came in at $221.41 million and $0.09, up 85.2% and 80% from the prior year’s quarter, respectively. PLTR’s adjusted EBITDA increased 82.4% year-over-year to $261.62 million.

Also, the company’s adjusted free cash flow improved 54.8% from the prior-year quarter to $148.66 million.

Positive Analyst Estimates

Analysts expect PLTR’s revenue for the third quarter (ending September 2024) to grow 26.1% year-over-year to $703.69 million. The consensus EPS estimate of $0.09 for the same period reflects a 29.8% year-over-year improvement. Also, it has an impressive earnings surprise history, having topped consensus revenue and EPS estimates in each of the trailing four quarters.

For the fiscal year ending December 2024, the company’s revenue and EPS are expected to grow 24% and 42% year-over-year to $2.76 billion and $0.36, respectively. Additionally, Street expects its revenue and EPS for the fiscal year 2025 to increase 20.3% and 21.4% year-over-year to $3.32 billion and $0.43, respectively.

High Profitability

PLTR’s trailing-12-month gross profit margin of 81.39% is 64.2% higher than the industry average of 49.58%. Its trailing-12-month net income margin of 16.32% is significantly higher than the industry average of 3.79%. Further, the stock’s trailing-12-month EBIT margin of 11.78% is 134.8% higher than the industry average of 5.02%.

Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 11.55%, 4.75%, and 7.79% are favorable compared to the industry averages of 4.59%, 2.73%, and 2.17%, respectively.

Elevated Valuation

In terms of forward non-GAAP, PLTR is trading at 98.34x, 320.3% higher than the industry average of 23.39x. Likewise, the stock’s forward EV/Sales multiple of 27.01 is considerably higher than the industry average of 2.82. Also, its forward EV/EBITDA of 74.47x is 435.2% higher than the industry average of 13.91x.

Also, the stock’s forward Price/Sales of 28.34x is significantly higher than the 2.77x industry average. And its Price/Book of 17.60x is 331.1% higher than the industry average of 4.08x.

POWR Ratings Reflect Uncertainty

PLTR’s mixed prospects are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to a Neutral in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PLTR has an A grade for Quality, consistent with its higher-than-industry profitability.

However, the stock received a D grade for Stability, in sync with its 24-month beta of 2.06.

PLTR is ranked #17 in the 18-stock A-rated Software – SaaS industry.

Beyond what is mentioned above, we have also given PLTR grades for Sentiment, Growth, and Momentum. Get access to all the PLTR Ratings here.

Bottom Line

PLTR’s recent strategic innovations and collaborations with industry leaders have strengthened its position in the AI market. Further, with its continuous efforts of leveraging AI for government and commercial contracts have significantly contributed to the operational expansion.

While the company’s long-term prospects appear sturdy with strategic partnerships and solid financial performance, its stretched valuation and rising market competition suggest waiting for a better entry point in this stock could be suitable.

Stocks to Consider Instead of Palantir Technologies Inc. (PLTR)

Due to its near-term uncertain prospects, the odds of PLTR outperforming in the weeks and months ahead are compromised. However, there are many industry peers with much more impressive POWR Ratings. So, consider these A (Strong Buy) or B (Buy) stocks from the A-rated Software – SaaS industry instead:

DocuSign Inc. (DOCU), MiX Telematics Ltd. ADR (MIXT), and WM Holding Company, LLC (MAPS).

For exploring more A and B-rated software stocks, click here.

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PLTR shares were trading at $35.59 per share on Friday afternoon, up $0.68 (+1.95%). Year-to-date, PLTR has gained 107.28%, versus a 18.99% rise in the benchmark S&P 500 index during the same period.

About the Author: Rjkumari Saxena

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions. More...

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