It has been a bumpy ride for Palantir over the past few years, but the stock has been a scorching-hot buy of late.
Palantir Technologies (PLTR 1.40%) went public in 2020, and it has come a long way in growing its business and improving its financials. The data analytics company has leveraged artificial intelligence (AI) to launch a platform, AIP, which promises to open up even more growth opportunities for its business in the long run.
The company is now profitable, and it’s often among the more popular AI and tech stocks for retail investors to buy. Under CEO Alex Karp, the business has continued to grow at an impressive rate. And there’s one stat from the most recent letter to shareholders which caught my attention, and which highlights just how well company has grown in 10 years.
Quarterly profits are now higher than the annual revenue it generated 10 years ago
In his quarterly letter to shareholders, Karp summed up just how impressively the business has grown over the past decade. “We now earn more profit in a single quarter than the amount of revenue we generated in an entire year a little more than a decade ago.”
That’s an impressive feat, because in order to achieve that, the business would not only have to generate significant growth over the years but also produce some strong margins along the way. Obviously, a decade ago, the business would have been much smaller, and thus it may not be that high of a bar to hit. But it’s still a notable accomplishment, particularly for a tech company that a few years ago wasn’t profitable.
Palantir reported a profit of $105.6 million last quarter, which covered the first three months of the year. Not only was it an impressive 17% profit margin, but it also marked the sixth consecutive period in which the business was in the black. The company no longer struggles with profitability and has also been growing its profit margin over the past year.
PLTR Profit Margin (Quarterly) data by YCharts
Palantir’s top line has been on an impressive trajectory
A big reason for Palantir’s success and strong bottom line is that the business has been booming with sales taking off in both its commercial and government segments. Through its new platform, AIP, there could be much more growth ahead in the commercial side as Palantir finds use cases for AI for businesses. Last quarter, government revenue rose by 16% year over year and commercial revenue rose by 27% — higher than its overall growth rate of 21%.
PLTR Revenue (Quarterly) data by YCharts
As the company has grown so fast, however, its actual year-over-year growth rate has started to slow down. But what’s impressive is that it still remains fairly high at over 20%.
PLTR Revenue (Quarterly YoY Growth) data by YCharts
If Palantir can continue achieving this type of strong growth, that could bode well for keeping the company at a fairly high valuation. The key to its future growth will undoubtedly depend on demand for AIP, which Palantir insists remains strong. Karp said in the shareholder letter that the company plans to expand the horizons for AIP, making it more accessible to businesses in not just the U.S. but abroad, including to government organizations as well as academic institutions.
With a lot more growth potentially on the horizon, it’s possible that Palantir’s business will continue to get bigger — but the growth rate may still slow down as it goes up against stronger comparable numbers. For the current quarter, the company projects revenue between $649 million and $653 million, which, at the midpoint, would translate into a year-over-year growth rate of just over 22%.
Is Palantir’s stock a good buy right now?
Since 2023, shares of Palantir have skyrocketed by more than 230%, after a tough year in 2022 when they tanked 65%. A resurgence in tech stocks last year, thanks in large part to the growing popularity of ChatGPT, has made Palantir one of the hottest stocks to own of late. But at 65 times its estimated future earnings, its valuation may be far too steep for many investors.
If, however, you’re planning to hold the stock for the very long term (i.e., 10+ years), then it may still be worth buying right now given the long-term potential for the business to become even bigger in the future. But with Palantir at such a high price with so much growth likely already priced into its current valuation, investors may be better off considering other growth stocks instead.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.