Exploring Palantir Technologies: Growth Opportunities and Risks Ahead

Last year, Palantir Technologies’ (NYSE: PLTR) stock was priced below $15 per share. Fast forward to mid-morning on October 9, and shares are trading around $43, marking an impressive increase of nearly three times in just one year.

Palantir’s software offerings have gained significant traction due to the rising demand for advanced data analytics, especially in the realm of artificial intelligence (AI). As the stock price continues to climb, investors may wonder how much longer this trend will last.

Below, we will explore potential growth catalysts for Palantir, as well as the challenges the company may encounter.

Potential Drivers for Palantir’s Stock Growth

Three key factors may lead to increased interest in Palantir’s stock over the upcoming year:

1. Increased Coverage and Ownership by Institutional Investors: In September, Palantir joined the prestigious S&P 500, which could increase its visibility among institutional investors. Major investment banks like JP Morgan and Wells Fargo might begin to provide coverage on Palantir, drawing attention from more analysts and, consequently, a larger pool of investors. This could serve as a positive catalyst for the stock’s future performance.

Additionally, more hedge funds may start investing in Palantir, further driving up institutional ownership, which typically correlates with stock price appreciation.

2. Strategic Partnerships: Earlier this year, Palantir announced two significant partnerships, one with Microsoft to enhance AI initiatives in defense, and the other with Oracle to integrate cloud workflows into its Foundry platform. These collaborations could pave the way for more partnerships within the tech industry, boosting Palantir’s growth prospects and creating more cross-selling opportunities.

3. AI Applications in Defense: The use of AI in the military is often overlooked. AI is expected to become increasingly pivotal in various defense applications, including cybersecurity and logistics. Notably, nearly half of Palantir’s revenue comes from contracts with the U.S. military and its allies. Recently, Palantir secured several AI-focused contracts with the Department of Defense (DOD). As defense budgets increasingly allocate funds for AI, Palantir stands to benefit greatly due to its established relationships with government entities.

Image Source: Getty Images

Factors That Could Lead to a Stock Pullback

The chart below depicts Palantir’s revenue and net income trends over recent years. The company has demonstrated accelerating growth in its revenue alongside a path to consistent profitability.

PLTR Revenue (Quarterly) data by YCharts

However, there is a cautionary note. The AI narrative alone may not be enough to maintain investor interest in Palantir. While growth has been commendable, alternative data analytics platforms exist. The company’s ability to reinvest profits into research and development (R&D), hiring, and marketing will be crucial.

Palantir will likely need to introduce new products and services swiftly to keep investor interest high. Without timely innovation, future earnings reports might seem merely adequate, potentially leading investors to seek more attractive options.

Understanding Palantir’s Valuation

Currently, Palantir is valued at $96 billion. While the company’s trajectory is impressive, this valuation appears steep for a business that reported $2.5 billion in sales over the past year.

PLTR Market Cap data by YCharts

It’s likely that some investors will look to secure profits in Palantir, particularly given the company’s long-term strategies. Observing a potential sell-off within the year as these priorities unfold wouldn’t be unexpected.

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JPMorgan Chase and Wells Fargo are advertising partners of The Ascent, a Motley Fool company. Adam Spatacco holds positions in Palantir Technologies. The Motley Fool has positions in and recommends JPMorgan Chase, Oracle, and Palantir Technologies.

The views and opinions expressed here belong to the author and do not necessarily reflect those of Nasdaq, Inc.