It’s important to take a long-term view.
Right now is an exciting moment for Palantir Technologies (PLTR 1.00%). It’s set to join the S&P 500 index on Monday, showing that the company is one of today’s leaders.
The stock has soared more than 100% so far this year, even climbing in recent weeks when other tech stocks have stumbled. And Palantir is starting to see big results from the launch of its Artificial Intelligence Platform (AIP) last year.
On top of this, Bank of America recently added Palantir to its list of top investments and predicts the shares could rise 35% from their current level. The bank selected the stock for its U.S. 1 List and expressed optimism about its addition to the S&P 500 and long-term prospects. The list represents the bank’s favorites among its buy-rated stocks.
Is it time to follow Bank of America’s advice and buy Palantir shares? Let’s find out.
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Palantir’s biggest growth driver
First, a look at Palantir’s path so far. For many years, the company was associated with government contracts, and these were its biggest growth driver. But in recent times, its U.S. commercial business has emerged as having great potential for Palantir. It has seen these customers increase from just 14 four years ago to nearly 300 today.
And those customers span a wide range of industries. Palantir recently extended its agreement with oil company BPÂ to “improve and accelerate human decision-making” and signed a new deal with fast-food chain Wendy’s that will first focus on decision-making and then include supply chain management and waste prevention.
In the most recent quarter, U.S. commercial revenue soared 55% and commercial-customer count increased 83%, showing strong momentum here. On top of this, the company posted $134 million in net income in the quarter, its highest quarterly profit ever.
Now, let’s consider what’s ahead. The growth we’ve seen in the commercial business along with the fact that it is driven by Palantir’s AIP is reason to be optimistic.
Artificial intelligence is one of today’s highest-growth fields, with companies hoping to use the technology to become more efficient and profitable. AIP is showing these customers and potential customers (through company “boot camps” that allow them to test the platform) how they can do this, and then AIP delivers on those promises — so we could imagine demand for AIP continuing.
Transforming Palantir’s business
CEO Alex Karp emphasizes this idea, saying that demand for AIP “shows no sign of relenting” and that the platform “has already transformed our business.” The general AI market is expected to climb from $200 billion today to $1 trillion later this decade, suggesting that AIP, which is helping customers reach their AI goals, could continue to drive growth at Palantir.
But just because the company’s commercial business is soaring doesn’t mean it has neglected the customers that once were its bread and butter. Its government business continues to excel — in fact, in this recent quarter, for the first time ever, trailing-12-month revenue for the U.S. government business surpassed $1 billion.
Now, let’s return to our question. Is it time to follow Bank of America’s recommendation and buy Palantir stock? Not all analysts are as bullish on it. Actually, the average analyst estimate expects Palantir shares to fall 27% within the coming 12 months.
And the stock isn’t the cheapest around. It actually looks pretty expensive, trading at more than 100 times forward earnings estimates. So, if you’re looking for bargain-priced stocks, Palantir isn’t right for you.
That said, growth companies are often known to trade at steep valuations during certain moments of their story. So if you’re investing in a quality company with plenty of growth ahead, you still can score a win if you buy today and hold on for the long term — even if the shares are pricey today. Palantir has shown that it has what it takes to keep earnings climbing, and the fact that it operates in the high-growth area of AI is another plus.
And all of this means Palantir makes a great investment today for growth investors who have the patience to invest now and stick with this exciting story as many chapters unfold.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends BP, Bank of America, and Palantir Technologies. The Motley Fool has a disclosure policy.