Palantir (PLTR 1.95%) has emerged as one of the stock market’s artificial intelligence (AI) darlings.
The tech company is known for its complex data analytics platforms. It got its start in the aftermath of 9/11 by providing software to federal intelligence agencies that helped them sift through mountains of data and make connections that could help them prevent further terrorist attacks.
Today, it’s considered a leader in AI software with the Palantir Artificial Intelligence Platform (AIP), which allows users to build AI apps to expedite workflows or to assist with processes like inventory management or procurement.
Palantir stock is up by more than 400% since the start of 2023, making it one of the top-performing AI stocks since the launch of ChatGPT. That bull run was recently capped off by news that the company would be added to the S&P 500.
In the wake of the stock’s surge, investors might be wondering if it’s too late to buy Palantir. Could the AI company still deliver returns from here that could make you a millionaire?
Image source: Getty Images.
The Palantir growth story
Some AI stocks such as Nvidia have put up blockbuster growth, but Palantir’s emergence has been slower. The company was founded in 2003 and went public in 2020. It’s on track to earn $2.75 billion in revenue this year.
In the second quarter, its revenue grew 27% to $678.1 million, and the company is now highly profitable, with an adjusted operating margin of 37% in the quarter, or a 16% margin on a generally accepted accounting principles (GAAP) basis. Profits have surged because the company’s business model is highly scalable — its operating expenses rose just 7% in the quarter.
Historically, Palantir’s business has largely come from federal government contracts, but it is diversifying its customer base with strong growth in the commercial division. In the second quarter, its commercial revenue jumped by 33% to $307 million — 45% of Palantir’s total revenue — and its commercial customer count jumped by 83% to 295.
Overall, its recent results have been virtually flawless, with steady growth, growing profitability, improved guidance, and a diversifying customer base. Palantir’s performance is especially impressive in an environment where software stocks have struggled, and a large number are trading well below their pandemic-era peaks.
CEO Alex Karp characterized the company’s growth as “driven by an unrelenting wave of demand from customers for artificial intelligence systems that go beyond the merely performative and academic.”
Can Palantir make you a millionaire?
Palantir’s share price growth from the all-time low it hit in late December 2022 has already helped some investors take significant steps toward millionaire status. While the business is firing on all cylinders, there are some legitimate concerns about its valuation.
Currently, the stock trades at a price-to-sales ratio of 82.6 and a trailing price-to-earnings ratio of 205, though considering its growth expectations, that ratio should come down reasonably quickly.
Other AI stocks like Nvidia seem to have plateaued for now as investors are concerned that cloud infrastructure companies are overspending on AI and that stock prices have gotten ahead of the growth in the underlying businesses.
As a software company, Palantir doesn’t really face that concern. Demand for its products is separate from the rest of the generative AI sector, but slowing growth could spark similar concerns. Palantir is at risk of being affected by headwinds in the broader economy, as its customers and potential customers could pull back on spending on a new technology.
Palantir also now has a market cap near $80 billion, so multibagger growth will be more difficult from here, but the company’s competitive advantages should ensure its continued growth.
If you’re looking for AI stocks or growth stocks to drive your portfolio toward $1 million, then investing in Palantir makes sense. However, making that position part of a portfolio diversified with other AI stocks seems like a better course of action. Additionally, buying Palantir opportunistically if it pulls back could deliver handsome rewards.
Overall, based on its recent results and the stock’s performance, Palantir has earned a place in any AI-focused growth stock portfolio.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.