This Top Hedge Fund Thinks Palantir Is the Top Artificial Intelligence Stock in the Market. Is It Right?

This Top Hedge Fund Thinks Palantir Is the Top Artificial Intelligence Stock in the Market. Is It Right?

Following what hedge funds are doing can be a great check in determining your investment strategy. If you see a few hedge funds investing in a stock you own, you’re probably on the right track. However, using this information at face value can also be problematic because there are multiple reasons why a hedge fund might buy a stock.

Renaissance Technologies, which generated annualized returns of 62% before fees and 37% after fees from 1988 to 2021 in its Medallion Fund, significantly increased its position in Palantir Technologies (NYSE:PLTR). In fact, Palantir saw the largest increase of all the fund’s holdings and now represents 1.71% of the fund’s assets, the second largest position.

So should you follow suit and stock up on Palantir? Or is there something else going on here?

Palantir’s latest product has become a success

Palantir has become a popular artificial intelligence (AI) stock pick because it has been developing AI tools much longer than many of its competitors. For a long time, Palantir developed AI tools for various government branches that essentially scraped lots of data and then provided actionable insights to its users.

When most people talk about AI right now, they’re referring to large language models (LLMs), which are the driving force behind artificial intelligence. generative AI technology. While these models are incredibly useful, integrating them into business systems that contain proprietary information can be difficult. This is where Palantir’s latest project, the Artificial Intelligence Platform (AIP), comes in.

AIP allows businesses to integrate AI into all aspects of their business and can be used to automate functions. It can also simulate scenarios to understand what can happen in a business. The use cases for AIP are endless, which has investors riled up.

The term Palantir management continues to use on conference calls to describe the AIP request is “unprecedented.” This is reflected in Palantir’s financial results, particularly in U.S. commercial revenue, which increased 40% year-over-year and 14% quarter-over-quarter in the first quarter. As customers in this segment become more successful, AIP will eventually find its way to Palantir’s largest customer: governments.

Understandably, many governments are hesitant to fully integrate AI solutions because they have not verified whether the technology is safe enough. With many pop culture films centering around AI going rogue and causing damage, there isn’t always a positive outlook associated with AI. However, these are science fiction ideas for a reason, and AIP will likely be incorporated in the future.

This would be a huge boost for Palantir, as government customers accounted for 53% of total revenue in the first quarter.

That’s a legitimate upside for the stock, but is that why Renaissance Technologies bought it?

The stock is way too expensive for fundamental investors

As mentioned above, you should research why a hedge fund is buying a stock before blindly following it. This is the case with Renaissance Technologies’ purchases of Palantir shares.

Renaissance Technologies describes itself as “an investment management company that uses mathematical and statistical methods in the design and execution of its investment programs.” So this hedge fund doesn’t really care about the fundamentals of a company, only the mathematical models that underlie trading patterns and stock charts.

As a result, this hedge fund’s activities are more noise than signals, but that shouldn’t stop you from buying Palantir’s stock if you think it’s poised for success.

However, the rest of the market also believes Palantir is poised for success, so the stock is trading at a high price-to-sales (P/S) ratio.

This Top Hedge Fund Thinks Palantir Is the Top Artificial Intelligence Stock in the Market. Is It Right?

PS PLTR ratio table

There are already a lot of expectations built into Palantir’s stock, so the company may succeed, but the stock may not go anywhere. Consequently, I think there is much better stocks to invest in than Palantir, because the company’s growth rate does not support its valuation.

Should you invest $1,000 in Palantir Technologies right now?

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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool ranks and recommends Palantir Technologies. The Motley Fool has a disclosure policy.

This leading hedge fund thinks Palantir is the best artificial intelligence stock on the market. Is it good? was originally published by The Motley Fool

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