Dan Ives’ Bullish Case for Palantir Technologies

The buzz around artificial intelligence (AI) is often dominated by tech giants like Microsoft, Alphabet, Amazon, Apple, Nvidia, Meta, and Tesla. However, there are lesser-known opportunities outside this circle, catching the eye of savvy investors. One such stock is Palantir Technologies (NYSE: PLTR), a polarizing player in the tech world.

Despite facing skepticism for its ties to the U.S. government, Palantir has been making waves in the AI space. With an impressive performance in 2023, Wall Street analyst Dan Ives of Wedbush Securities has come out strongly in support of Palantir, labeling the company as the “Messi of AI” after its stellar fourth-quarter earnings report. Ives upgraded the stock’s price target to $30, signaling a potential 40% upside from its previous trading levels as of Feb. 7.

Let’s delve into Palantir’s business, analyze its AI disruption, and examine its valuation against industry peers to assess whether it’s a lucrative stock to buy.

The Rise of Palantir in 2023

For many years, Palantir focused on three software products: Foundry, Gotham, and Apollo, all designed to aid large enterprises in complex data analytics and synthesis. In April, it introduced the Palantir Artificial Intelligence Platform (AIP), a move that was somewhat overshadowed by big tech’s aggressive AI investments.

To promote AIP, Palantir initiated “boot camps” – immersive seminars for prospective customers to test its software, leading to a significant increase in its customer base and, notably, its penetration of the private sector. The company’s commercial customer count grew by 44% year over year in 2023, with revenue from U.S. commercial customers soaring by 70% in the fourth quarter alone.

This shift indicates Palantir’s evolving role from primarily a government contractor to a prolific developer of enterprise software, stepping up its game in the commercial arena.

Image Source: Getty Images

Promising Future for Palantir

The commendable customer acquisition translated into a 17% year-over-year revenue growth in 2023. And considering the company’s trajectory, its $1 billion revenue milestone in 2020 swiftly escalated to over $2 billion in 2023.

Despite macroeconomic uncertainties, Palantir’s emphasis on accelerating customer acquisition through boot camps and focus on upselling and cross-selling to new customers may lead to a substantial revenue surge in the future. Operating margins expanded from 22% to 28% in 2023, reflecting robust financial performance.

If Palantir sustains this growth, it may become a formidable contender for institutional investors, especially if it becomes eligible for inclusion in the S&P 500.

Investing in Palantir: A Prudent Choice?

Palantir is a growth stock with inherent volatility, as reflected in its price-to-sales (P/S) ratio, currently at 25.7. While this places it at a premium compared to peers, investors should note the recent surge in its valuation post the fourth-quarter earnings release.

However, attempting to time the market is often futile. Instead, a strategy of dollar-cost averaging, gradually accumulating shares, might be the wise approach for long-term investors, considering Palantir’s promising 2023 performance as a harbinger of its future potential in the AI landscape.

Note: Palantir Technologies is not among the 10 stocks identified by the Motley Fool Stock Advisor analyst team as prime picks for investors. However, its service has outperformed the S&P 500 since 2002. This perspective provides an alternative view when considering an investment in Palantir.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, and Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.